For Short Term Planning, an ARM Refinance Could be Your Lady Luck
Variables, variables, and more variables. Life is all about adapting to change, right? Well, ARM (adjustable rate mortgage) is definitely one that can take you through a series of up and down rates. However, timing is everything. It’s like being on the golf course and knowing the right moment to take your 9 iron and catching the slight breeze to help you formulate your swing. You want to ease the ball right into the hole with all of the control of the world. Get into a rhythm of being focused but still loose to adapt to what the wind or the course throws at you. That’s the type of tenacity you need to have in an ARM refinance.
What is ARM refinance?
ARM refinance allows homeowners to acquire a lower or higher mortgage rate for a specific period of time. Instead of having a steady rate throughout the mortgage term, you have options to take a lower or higher rate depending on the overall market. For some homeowners, they can really take advantage of the lower rate. Others that don’t plan carefully could get stuck paying higher rates and dig themselves in a deep pile of, well you know. It’s wise to have a safety net because the market is so volatile, you don’t want to crash land on a deserted island that’s surrounded by sharks. If you’re smart, you can play the game like a World Series Poker player.
How to become eligible for an ARM Refinance
One of the first things you need to look at is your credit score. Remember, an ARM can get a bit topsy-turvy even if you do it short term because you have no idea what rates will be thrown at you. Lenders want to know your stability and how well you are at making your payments on time. A credit score of 740 and up will put some assurance in lenders to trust your request to refinance under an ARM. Certain lenders will accept an equity level of 5% in the home but try to increase the number from 10 to 20%. That will certainly give you more security in case of harder times ahead.
Advantages of an ARM Refinance
Sometimes, having ARM refinance is like playing Roulette – your not sure what the odds are going to be. However, if you are quite keen to market changes – you can parlay this into a favorable outcome. If you were planning to sell in a short period of time, those lower rates will easily save you a ton of money. The great thing about a reset is it stays there locked for a certain period. Once the loan is set then there’s no way it will breach the cap until a couple of resets down the line. However, you should always be ready for the worst case scenario. Let’s say your income has increased and you get the higher rate. The plus side is that you can pay off a lot of your interest and take the higher mortgage monthly. This will lower the length of your mortgage term; save yourself some money down the line. Always have a level of financial security because the market dictates your mortgage rates. You don’t want to get into a situation where you’re hyperventilating in the corner.
Seek out multiple lenders
There’s no perfect situation in any type of refinance. However, the advice of a number of lenders will show you what’s the best option for your taste. Weigh your options and find out what’s within your range and what will prevent you from falling into a hole. Finding a middle ground is what you need to keep you from drowning in the waters of high tide as you surf the market for the most optimal rates.