Refinancing your home loan to a lower interest rate or shorter term may result in significant savings. And as economic conditions change, you want to be sure you still have the best home financing arrangement for your current and long-term financial goals.

We can tell you how long it'll take for you to cover your refinancing costs and whether refinancing makes sense for you.

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3.- Should you choose an ARM or a fixed-rate mortgage? Most ARMs adjust annually, either up or down. So even at a below-market start rate, it’s possible your ARM interest rate could soon exceed current interest rates. If you plan to remain in your home for a short period, an Intermediate ARM,with a low introductory rate that remains fixed for several years before the first adjustment,may be best suited to your needs. I would be happy to run various loan program scenarios to help you balance all the factors and make an informed decision.

Refinancing 101 - Must Read :

If you're thinking about using a cash-out refi to cover expenses or trying to get out of Debt, we'll help you determine how much you may be able to get out of your home.

• Reduce your monthly payments by taking advantage of lower interest rates or extending the repayment period
• Reduce your interest rate risk by switching from an adjustable-rate to a fixed-rate loan or from a balloon mortgage to a fixed-rate loan
• Reduce your interest cost over the life of your mortgage by taking advantage of lower rates or shortening the term of your loan
• Pay off your mortgage faster (accelerating the build-up of equity) by shortening the term of your loan
• Free up cash for major expenses or to consolidate debts  

If you have an ARM, you probably selected it because it offered a lower initial interest rate. This lower initial rate:

• Increased your borrowing power
• Provided you with lower monthly payments than you would get from a fixed-rate mortgage

However, that low initial rate doesn't stay that way forever; it's scheduled to change periodically. When and how often it changes depends on the type of ARM you selected:

• The initial interest rate can remain fixed for the first one to 10 years. After that, it's adjusted periodically based on financial market conditions and the type of loan you have.
• During the initial fixed-rate period, your monthly payments are lower than those of a fixed-rate loan.
• After the fixed-rate period expires, your loan will adjust every six months or every year, depending again on the ARM product you have.

Consult your loan agreement for details about how the adjustments are determined, the percentage that's added to determine your new rate, and the maximum amount the rate can increase over the life of the loan.

Evaluating the Equity Effect

Because your home is likely your most valuable financial asset, it's critical that you take steps to protect your investment. This is an important perspective to maintain now, when you might be tempted to focus only on the more immediate effects of a monthly payment increase.

While it's necessary to have a monthly payment that fits within your budget, it's equally important to pay some amount of the loan's outstanding balance --- known as principal -- each month.

Your monthly mortgage payment consists of two components: principal and interest.

• Principal is the amount that reduces the outstanding loan balance
• Interest is the charge for using this borrowed money

Loans that permit you to pay only the interest component -- or just a portion that monthly interest payment -- have become quite popular. Because they don't include the principal portion of your payment, the low monthly payments they offer can appear quite attractive.

But remember: Having a monthly payment that fits within your budget is only part of the equation. You also have to consider the long-term effect of your loan. Let's look at some of the effects of these loans.

Loans that permit interest-only payments

• If you don't make principal payments, you lose the ability to increase your home equity by decreasing your loan's outstanding balance.
• When the interest-only period expires, your payments can increase substantially because the remaining balance is repaid over a shorter period of time. For example, if you have a five-year interest-only loan, your principal is amortized over the remaining 25 years.
• If property values decline, you could owe more than your home is worth.

Loans with payments that are less than your full monthly interest payment

• When your payments are less than the interest due each month, the unpaid interest is added to your loan's unpaid balance.
• When you repeatedly make monthly payments that don't cover the interest incurred each month, it's known as negative amortization because you're increasing the amount of your loan.
• Regularly making these minimum payments could result in owing more than your home is worth.
• When these loans - which are called option ARMs - are adjusted, they typically increase to rates that are higher than traditional ARMs.
• In some cases, rate increases can cause payments to rise by nearly 25%.

How do you know if your mortgage is an interest-only or option ARM?

• Get your latest mortgage statement.
• Use the information on your statement to answer this question: Is your outstanding balance higher or lower than the amount you originally borrowed?
• If your balance is lower than what you originally borrowed, you're building equity and adequately protecting this important financial asset.
• If your balance is higher or exactly the same, you should consider taking steps to protect your most-important asset by refinancing.

In most cases, interest-only or option ARM loans are best viewed as "transition mortgages." As soon as you can make a larger payment, consider refinancing into a loan that includes regular principal payments.

If you have questions about your loan, we're always available.