Understanding Your Loan Options
There are benefits to every refinance loan option. We'll help you understand which loan is right for you.
Depending on your goals and financial situation, you'll have several different refinancing options to choose from. We'll help you understand the differences between them so you can choose the right refinance loan for you.
Two Basic Types of Loans
Most loans fall into one of two categories: fixed-rate and adjustable-rate.
Fixed-rate loans are generally 15, 20 or 30 years long. They provide a constant interest rate, and monthly principal and interest payment, for the life of your loan. The benefits of refinancing your home with a fixed-rate loan is:
- Your monthly principal and interest payments will be predictable for the entire life of your loan
- You’ll be able to spread your payments out to lower your monthly principal and interest payment amount
- You won’t have to worry about mortgage rates rising
Adjustable-Rate Mortgages (ARM)
Adjustable-rate mortgages generally offer a lower rate than a fixed-rate loan for the first five to seven years of your term. After that, your rate will change with the market index. Here are some benefits and drawbacks of refinancing your home using an adjustable-rate mortgage.
- In the beginning of your loan term, your interest rate will be lower than a fixed-rate loan. This saves you money early on, which can be good if you’re not planning to stay in your home longer than the initial loan term.
- Your payments can increase quite a bit when interest rates are rising
- As the index goes up or down, your payments will also change at each scheduled adjustment date
- There are "rate caps" to limit the amount your interest rate can go up or down
Deciding Which Loan is Right for You
Deciding between a fixed-rate and adjustable-rate loan depends on two key factors:
How long do you plan to own your home?
- Planning to stay put.
If you plan to stay in your home for more than seven years, you may want to consider refinancing with a fixed-rate mortgage. A fixed-rate mortgage will offer you predictable payments and long-term protection against rising mortgage interest rates.
- Planning to sell.
If you plan to be in your home for seven years or less, an adjustable-rate mortgage could be an attractive option. Keep in mind that should you stay in your home longer than you originally planned, your monthly payments may go up when your interest rate is adjusted if mortgage interest rates are rising.
What are the Current interest rates?
- Depending on current interest rate conditions, the differences in the monthly payment between a fixed-rate loan and an adjustable-rate loan could be very small or quite large. There are many different variables involved, so use our online calculator to figure out which type of loan makes the most sense for your refinance. You can also contact a Chase Mortgage Banker with questions. We can help you consider all of your options and choose the right loan for you.
Additional Refinancing Options
In addition to the traditional fixed-rate and ARM loans, we offer a variety of other loan options, like programs for low-income families, or veterans. As you shop around for loans, make sure to ask if you qualify for any special loan programs. Here are a few things to consider:
- FHA/VA loans. The Federal Housing Administration and the Veterans Administration offer loan programs with low down payment requirements. The FHA allows as little as a 3.5% down payment and there may be no down payment required for VA loans. Ask your lender about these programs.
- Alternative loan terms. Most mortgage loans are 30-year loans. However, there are also 15- and 20- year options. If you’re looking to pay off your home more quickly, you may consider refinancing for a shorter loan term.
- Ways to reduce your rate. You can reduce your interest rate when you "pay for points" to lower your monthly payment. One point costs 1% of your loan amount and can reduce your interest rate by about 0.25%. Learn more about discount points.
- Home Affordable Refinance Program (HARP). If you refinance with your current lender, you may qualify for a loan through HARP. HARP loans make the refinancing process simpler, with less background information and a faster closing time. Learn more about HARP.