Your refinance home loan is a new loan using once again the subject property as collateral. But what if you have seen the possibility of relocating to another state because a child is going to college soon? What are your options?
Opting for an Adjustable Rate Mortgage
With the likely prospect of relocating in a few years, the option for an adjustable rate mortgage (ARM) for your refinance home loan is a smart one. For the last three or four years of your stay in your house, you will be paying low interest rates on your new loan before rates take an upward swing.
Commonly, people shy away from an ARM for their refinance home loan because of an unpredictable market. But here’s the advantages you’ll get from an ARM:
1. Low interest rates for the first few years.
2. Time to plan for the future.
3. More cash flow because of lower monthly payments.
4. When rates fall, you don’t need to refinance companies will ensure you get the low rates.
However, before you go for an ARM, you only have to answer one very important question: Can you afford to continue paying the loan in case the rates soar? If the answer is yes, then, by all means, go for it.
What You Need To Know
The interest rate for your refinance home loan on ARM changes over time. The first interest rate is set below the market standard comparable to a fixed rate loan. Unlike the fixed rate mortgage, the ARM rates rises and beyond three years or seven years depending on your loan contract, the rates exceed those of the fixed rate mortgage.
This is the reason why this is attractive for those who are planning to stay in the house for a few years. By the time the interest of your refinance home loan rises ,you can sell your home after working it out with your lender and checking your mortgage pay-off.
In selling your home, calculate your estimated expenses. Deduct the mortgage payoff from the fair market value of your home and subtract the charges to sell from the remaining balance to arrive at an estimate of proceeds due to you at the closing.
Here is the list of expenses to be incurred when you’re going to sell your home:
1. Commission of the real estate agency.
2. Advertising costs if you’re selling on your own.
3. Attorneys fees for the closing if you’re selling on your own.
4. Excise tax for the transaction.
5. Homeowner Association fees and property taxes and other fees.
6. Inspections and surveys.
When all is said and done, the amount paid to you at the closing should enable you to pay for a new home. If not, then you have to pursue a new loan. This is why you should get pre-approved for another loan before you sell your house. A ready house on the block makes it easier for you to calculate the amount of the new refinance home loan you will need.