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Refinancing can have other financial benefits besides lowering

rates. Locking in rates can protect you from higher rates,

saving you money on future interest costs. You can also change

your ARM for better caps to prevent huge monthly increases.

Consolidating your bills with your equity saves on credit card

rates while providing a tax advantage.

Protection From Future Rate Hikes

An adjustable rate mortgage (ARM) provides the lowest rates for

home buyers, but these rates can increase. Monthly payments can

jump a couple of hundred dollars a month depending on market

rates and loan caps.

For those planning to stay in their home for more than seven

years, it is a good idea to refinance to a fixed-rate mortgage

if rates look likely to rise. Fixed-rate mortgages offer

security from future payment hikes, but with slightly higher

rates than ARMs.

Trading In For Better Caps

Many ARMs offer initial low set rates that can change after a

couple of years. Jumps in payments can be surprising, especially

if you have less than favorable caps. Caps set limits on how

much and how often your payments can increase.

Refinancing your ARM can help you negotiate lower caps. You can

also find an ARM with set rates for several years, just like

with your original mortgage.

Helping To Pay Off Your Loan

Early payment of your home loan saves on interest costs. For

those you need a structured approach to make larger payments,

refinancing for a shorter term may be the answer.

For instance, exchanging your 30 year mortgage for a 15 year

mortgage can reduce your interest costs by almost half, even at

the same rate. Even with the origination costs, early payment

will still save you money.

Taking The Tax Advantage

Mortgage interest is tax deductible, unlike interest on other

bills. Cashing out part of your equity to pay off bills can give

you a financial edge to get ahead. Be sure to make refinancing

part of your larger financial goals to enjoy the full benefits.

Investigating Lenders

Investigate lenders before you sign a contract to be sure you

are getting the best financial offers. Ask about their APR to

get a true understanding of the loan costs. Many financial

companies post this information online, or you can request near

instant quotes.

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Written by: Carrie Reeder