Mortgage refinance is an option to close an existing mortgage loan account by paying it off in full with the help of a new mortgage loan, with the same property serving as collateral.
People usually take mortgage refinance to avail of lower interest rates in the market and/or for other reasons. There are several mortgage refinancers operating in the state of Arkansas, both lenders and brokers, but you should have a modicum of prior knowledge in order to be able to negotiate the best deal for you.
Factors to be considered
The most important factor is: what you want your mortgage refinance loan to do for you. Do you want to reduce your monthly payments? Do you want to increase the period of time for full repayment? Or do you want to reduce the time? Do you want a lump sum cash immediately?
Or do you simply want to pay interest only and defer the payment of the principal to the end of your loan term? Once you have decided what you want your mortgage refinance to do for you, you should decide what type of loan you want?
Types of mortgage refinance in Arkansas
There are different types of mortgage refinance loan available in Arkansas. The main ones are:
- Fixed-interest mortgage (FRM) : This is the type of loan most refinance seekers have. It carries with a fixed interest rate throughout its life. Since the case for refinance often up when interest rates have fallen, FRM loan-takers don’t stand to benefit when interest rates decline. However, the advantage of FRM loans is that the monthly payments do not increase even if interest rates were to rise.
- Adjustable rate mortgage (ARM) : These are loans that come with affixed low interest rate in a specified number of initial years, after which interest varies every year thereafter. One should understand the nomenclature of ARM loans. For example, a 5/1 ARM means that the loan will carry a fixed interest rate for the first five years and then change every year thereafter. ARMs are a popular mortgage loan type in Arkansas, with the most common ones being 15-year ARMs and 30-year ARMs.
- Interest-only mortgage loans : This is an interesting type of loans and is meant for those who have, or expect to have, substantial savings in securities, insurance or pension from which they can pay off the principal when the loan terms ends. Servicing of this type of loan therefore amounts to payment of interest only for the life of the loan.
- Jumbo loans : This is not a popular type of loan in Arkansas. Mortgage loans are said to be ‘jumbo’ if the amount exceeds the limit stipulated by Government-Sponsored Enterprises (GSEs), which are: Mannie Fae?, Freddie Mac, and Federal Housing Loan Banks. These are basically private companies founded under federal law and briefed with the task of facilitating inflow of funds into crucial sectors such as housing, small industry, agriculture, etc. Loans that comply with the limits specified by GSEs are called ‘conforming loans’. Loans that exceed the specified amounts are called ‘jumbo loans’. Jumbo loans come a quarter percent to half percent higher interest than conforming loans.
Using online calculators
To help you decide the type of loan best for you, there are mortgage loan and refinance calculators on the websites of lenders and brokers. Two such websites are: www.bankrate.com, www.erate.com, and www.mortgageloan.com, though there are many others on the Web too.
Enter the data asked for by these calculators, and you will be shown the options available within the parameters you specify.
Talking to lender / broker
Online calculators give you a reasonably reliable picture of what the mortgage refinance market holds for you. However, to get precise details, you must contact lenders or brokers registered in Arkansas.
You can get their contact details from the Web, using a search engine like www.google.com and typing-in appropriate search words such as ‘mortgage refinance lenders and brokers in Arkansas”. Contact a few of them and match their offers with the online calculator’s calculations; the difference should not be huge.
One thing you must ensure with the lender or broker is that they tell you in no uncertain terms the APR (annual percent rate) instead of harping on just the interest rate. APR encompasses the cost of loan on an annualized basis, hence it is the precise indicator how much you have to pay.
Mortgage refinance options are aplenty in Arkansas, but you should know the open that is best for you.
Don’t be swayed by low interest rates alone because there are other payments to be made such as closing costs, processing fee, points you are willing to pay to reduce your interest rate (one point = 1% of your loan amount), etc. The catchword therefore is ‘APR’, not interest rate.