In the Beehive State, owning an adjustable-rate mortgage comes with many benefits. It lets you enjoy below-average interest for a specified period, helping you keep more dollars in your pocket during the first years of your loan. If you have bad credit at the time of borrowing, it allows you to snag lower interest you couldn’t otherwise qualify for.
After the “honeymoon” period, though, your interest rate is subject to change. You would know when would it happen, but there’s no telling how high or low it could go. From refreshing your memory to applying for a refinance in Utah, do the following to avoid financial hardship after the adjustment:
Review Your Docs
First of all, read your mortgage document to remind yourself about the initial adjustment rate cap. This is the maximum degree the interest rate can move up when the discounted period expires.
Also, find out how your lender would decide on the new rate. Your papers should spell out the margin and the index. The former refers to the predetermined number your lender would add to the outstanding value of the latter. The margin is fixed while the mortgage index is variable. Mortgage indexes fluctuate because of market factors.
Apply for a Refi
If your new monthly payment with the adjusted interest rate would be too costly for you, consider refinancing your mortgage. In a refi, you’re trading your old home loan for a fresh one. It’s a convenient option to secure a lower interest rate, shorten or lengthen your term, or even get a new balance.
But since you’re starting from scratch, getting qualified for a mortgage in the past doesn’t guarantee similar success. The usual reasons for denial include lack of home equity, low credit score, and inadequate income.
If you afford your expected, adjusted monthly payment, realize that your interest rate is going to move again repeatedly. Generally, ARMs reset once a year.
Identify the worst-case scenario to see whether you can shoulder the maximum possible increase. If you don’t feel secure, consider refinancing your mortgage down the road. Another reason not to keep your hybrid home loan, in the long run, is the prospect of moving in the future.
An ARM usually loses its gloss after the introductory period. Mull over it to see whether it’s worth keeping for good, or you’re better off with a new loan.