This article tells you about Changing your type of rate: adjustable versus fixed. There are a lot of reasons that you may want to refinance your mortgage, one of the more common ones is to switch from an adjustable rate to a fixed rate mortgage. In some cases you may want to go the other way but overwhelmingly people will refinance in order to lock in a fixed rate. The obvious reason that you would do this is that you are worried that interest rates are going to rise in the near future.
The vast majority of people when they take out a mortgage go with an adjustable rate. This is because the interest rate is lower and there are quite a few studies that show that in the long run this is the cheapest option. There is however a risk to having an adjustable rate mortgage, interest rates could go up. Not only do rising interest rates mean that you will pay more in total interest they also mean that you will have higher monthly payments which could be a real problem for a lot of people.
If you are facing the possibility of higher interest rates it is often a good idea to switch to a fixed rate mortgage. This can be a bit of challenge however since in order for it to have any real benefit you have to do it before interest rates go up. If you make the switch and interest rates don’t rise you will end up paying the higher interest that comes with a fixed rate mortgage for no good reason. It is therefore usually a good idea to consult with a financial advisor to help you to determine if it makes sense or not to switch to a fixed rate.
While most people who refinance will go from an adjustable rate to a fixed rate mortgage it may well make sense to do the opposite. Over the last few years interest rates have held fairly steady at a relatively low level. This means that people who are on fixed rate mortgages have been paying more than they have to for no good reason. In most cases they can save money on interest by switching to an adjustable rate mortgage without too much risk of rates rising on them. Even if rates do rise eventually they can always refinance again in order to go back onto a fixed rate.
The decision about which type of mortgage you should be on can be a tricky one. There is a fair amount of research that shows that even though adjustable rate mortgages do come with some risk they also cost the least in the long run. That being said there are quite a few people who are not comfortable with the risk of rising interest rates. For them it often makes sense to be on a fixed rate mortgage.