Mortgage : Home Loans : Refinance : Home Equity Loans

By Mary Stasiewicz

Homeowners have used the favorable interest rates over the last 10 years as a means to refinance first and second mortgages with lower rate first mortgages and also have acquired second mortgages for personal use. In the early nineties, fixed rate mortgages were between 7.5% and 9%. As rates started to drop in the late nineties, homeowners looked at refinancing at more favorable rates. Mortgage rates dropped to rates in the 4% range for fixed mortgages. In addition, the mortgage market offered many different types of adjustable rate mortgages with rates as low as 1.25% for negative amortization.

For example, a homeowner with a fixed 7.5% mortgage can use the equity in their home to lower their payments to credit card companies. They can acquire a second fixed rate mortgage at a rate of 5% and will realize significant savings with this acquisition. Now the total payments on the two mortgages, first and second, will total significantly less per month as opposed to their first mortgage and the high credit card debt payments.

If the homeowner in the above example decided to reduce their payments by the use of an adjustable rate mortgage, he could have a rate below the fixed rate mortgage but be subject to adjustments up or down based on an index. The index can be based on the prime rate plus or minus 0% to 2%. This type of loan taken in 1995 would have an interest rate of 4.5% in 1995. If this loan was at a prime rate plus 1.25% today that rate would be close to 9%. With a cost of the loan in today

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This entry was posted on Thursday, August 3rd, 2006 at 4:26 am and is filed under Refinance. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.