Fixed Rate Mortgage Refinance - Pros and Cons

Looking to refinance your mortgage with a fixed rate loan? Think about both the pros and cons before signing with a lender. These traditional loan terms may seem like a safe bet, but they can cost you thousands more if you arent careful.

Pros Protection From Higher Rates

Fixed rate mortgages provide the security of always knowing what your monthly payment will be. If the Federal Reserve decides to hike rates up 10 points, you dont have to worry.

Todays mortgage rates are near historic lows. So its unlikely that youd save yourself that much money by refinancing with an unpredictable ARM.

Pros Able To Buy Down Rates

Buying down rates with points can guarantee yourself savings of thousands of dollars on your fixed-rate refi. For example, buying down a 7%, $200,000 loan to 6.75% would save you $58,750.53 over the life of the mortgage.

Cons May Miss Out On A Rate Drop

Fixed rate mortgages lock you into a rate. So you miss out on any reduction in mortgage rate changes. Even a drop as little a quarter of a point can cost you thousands.

Keep in mind, that if your credit score improves in the future, you could become eligible for lower rates, even if market rates havent changed. Some subprime ARMs have this refinance option as part of their contract.

Cons Fixed Rates Higher Than ARM

Fixed rate home loans will always have higher rates than ARM at least in the beginning. And you will find that you have a higher monthly payment refinancing with a fixed rate mortgage. Fees can also be higher with a fixed rate mortgage.

Choosing to refinance with a fixed mortgage is a gamble. If you have good credit now and feel that mortgage rates are low, then opt for a fixed rate. But if you want low monthly payments now or think that you can qualify for lower rates in the future, then consider refinancing with an adjustable rate mortgage.

Recommended Online Mortgage Refinance Lenders - We maintain a list of low rate mortgage lenders and update the list frequently. Try applying with one of our recommended lenders first.

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