The Truth about Interest-Only Refinancing

 It is not necessarily true that if you are not paying down your loan's principal every month, then you will not be building home equity. Homes in the U.S. are now appreciating between five and six percent a year. The truth is that even if you are not paying a down principal, appreciation is building equity in your home for you.

You should also know that pre-payment penalties will never apply with any ZeroPoint Lending interest-only loan. You will always have the option to refinance again if mortgage rates or your financial situation changes.

*The numbers in the example were calculated using the following assumptions: 3-year ARM (interest-only) at 7.360% APR, 80% LTV, with 1.5 points due at closing. After 3 years, the payment is $1,270.83 versus a 3-year ARM (principal and interest) at 7.319% APR, 80% LTV, with 1.25 points due at closing. After 3 years, the principal and interest payment is $1,398.47. Single family residence, owner occupied. Rate is variable. Not available in all states. Some restrictions may apply.

How Mortgage Interest Rates Are Affected

Supply and demand have the greatest affect on interest rates. Interest rates will rise while the economy is growing and borrowing is strong. Interest rates will drop when the economy slows down and fewer people are taking out loans. Alongside the economy, interest rates are influenced by what the Federal Reserve, also known as “the Fed”, does and where the fed funds rate is set.

 Short-Term & Long-Term Rates

The interest rate charged when banks lend funds to one another is called The federal funds rate, also known as the “fed funds” rate. This is a short-term rate, or a rate that is two years or less in maturity. When Bernanke raises or lowers the fed funds rate, it affects mortgage rates that are tied to short-term interest rates, such as home equity rates and adjustable rates. Borrowing and spending increase when short-term rates fall. This could cause inflation, and is something the Federal Reserve wants to keep in control.

Rates that are long term, such as 10 years or more in maturity, including 30-year mortgages, are influenced by short-term rates because they can rise when concerns about inflation increase. The Fed started raising short-term interest rates in 2004 to keep inflation under control. Now, people who have adjustable rate mortgages have been refinancing into longer-term fixed-rate mortgages to avoid rising rates, especially since long-term rates have remained extremely low for quite some time.

The Fed is expected to raise the fed funds to a rate of 5.0%.  No one is for certain as to when rates will stop rising because accurately predicting the future of the U.S economy is nearly impossible. No matter what, understanding some of these market dynamics is very important because a lack of knowledge can sometimes cost you a lot of money.

 If you are would like to learn more about mortgage interest rates, call us at 866-882-ZERO to talk to a loan expert or click the button below and a refinance expert will answer all your questions.