Sunday, May 10, 2009

With low rates should you refinance?

Borrowers with hybrid adjustable-rate mortgages – loans that carry a fixed-interest rate for a certain number of years and then reset annually to rates tied to market benchmarks – are questioning if they should refinance to lock in a low rate for the long term, or if they should keep their adjustable-rate mortgages, currently at interest rates lower than their initial fixed rates.

Some mortgage experts say it’s best to refinance out of adjustable-rate mortgages if the borrower plans to live in the home for more than two years. Adjustable-rate mortgages are tied to myriad indices, and today’s low rate could jump as the economy recovers and inflation kicks in. The increase would result in borrowers paying more in the long term for an adjustable-rate mortgage than they would if they refinanced into a fixed-rate mortgage.

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