If you are in the process of refinancing your home mortgage loan, choosing the right type of mortgage for your situation could save you thousands of dollars. There are two basic types of mortgage loans to choose from when refinancing depending on your financial needs and tolerance for risk. Here are several tips to help you choose the right type for mortgage when refinancing your home loan.Mortgage loans come in two varieties: loans with fixed interest rates and those with adjustable interest rates. Fixed Rate Mortgages come with term lengths of ten to fifty years and have payments based on an interest rate that does not change for the duration of the loan. Adjustable Rate Mortgages on the other hand, are based on a specific financial index and will include the mortgage lenders margin. There is another type of mortgage known as hybrid loans; however, hybrid mortgages are really just a combination of Fixed Rate and Adjustable Rate Mortgages.The interest rate on your Adjustable Rate Mortgage will change every time the lender resets your loan. When the lender resets your interest rate and payment amount, they will use the financial index your loan is tied to plus their own margin. The most common index used by mortgage lenders is the one-year Treasure note. Adjustable Rate Mortgages have the advantage of lower initial payments; however, these loans have more risk for borrowers once the lender begins adjusting the loan.Homeowners who understand the risks associated with Adjustable Rate Mortgages can save thousands of dollars when refinancing their mortgage loans. You shouldn’t write off Adjustable Rate Mortgages because someone told you that you’ll have payment shock when the lender begins adjusting your loan.You can learn more about your mortgage options, including costly mistakes to avoid with a free mortgage tutorial.
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