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Most people who buy a home put their mortgage in a drawer--they close on the loan and make their payments every month and don't think about it beyond that. But what they may not realize is that being in the wrong mortgage for your current situation can hurt you by costing you money. You may have been living in your home for 20 years with your family or you may be a young couple thinking about starting a family. Or you may have to move every so often due to the nature of your job or because of job transfers. Whatever the case, life changes often so it's important to review your situation. You should first ask yourself how long you plan to be in your home. Knowing this will help you figure out whether you should be in a fixed-rate mortgage or in an adjustable rate mortgage (ARM). The average homeowner moves approximately every seven to nine years. If you plan on being in your home less than that, an ARM might be better than a fixed-rate mortgage. If the answer was more than seven to nine years, then a fixed-rate mortgage would be a wiser choice. Next, consider what's going on in the housing market. The Federal Reserve has raised short-term interest rates 15 times in a row since mid-2004 and some economists expect them to raise rates at least once or twice more. If you currently have an ARM and it is set to adjust in the near future, considering the current rate environment, you may want to consider refinancing to a fixed-rate mortgage, especially since long-term fixed rates are still historically low. Third, think about your goals and your situation. For example, if you are a young couple living in a modest house, but are thinking about having children in the next couple of years, consider refinancing to a short-term ARM to lower your mortgage payment until you move into a bigger home that will suit the growth of your family. If you're recently divorced and are having trouble making your monthly mortgage payments, consider refinancing to an interest-only loan which allows flexibility in your mortgage payments. For a given time period, it allows you to pay only the interest plus as much or as little principal as you like which can be extremely helpful when things are financially tight. What if your goal is to pay off your mortgage as quickly as possible? Then consider refinancing to shorten the term of your mortgage. For instance, if you have a 30-year fixed-rate mortgage, you could refinance to a 15-year term. Since the principal balance is amortized over a shorter period of time, you can end up paying significantly less in interest over the life of the loan. In summary, traditional thinking has always taught us that your mortgage is best left alone. But with so many different mortgage loan options available these days, it may not make sense to keep the same mortgage at all times. Life will always bring changes and you may save yourself lots of money and headaches by keeping your mortgage in sync with your situation.
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