Opting for a longer-term mortgage, on the other hand, means you have the chance to have lower monthly payments. Since inflation is being projected further, the trade-off becomes a higher interest rate. And by taking longer to repay the mortgage, you end up paying more in interest. It is a good option, however, if you need the funds to put into your home for other things.
Go from ARM to fixed rate
ARM, or adjustable-rate mortgages, have lower interest rates compared to current market rates since investors are not forced to guess where inflation is going to be. After the initial fixed period, the interest rate can always adjust up or down.
You should, however, consider a fixed-rate mortgage if you stay in your home longer or if interest rates are trending up around the time of your adjustment. Fixed-rate mortgages give you payment certainty for the entire loan term. In this scenario, a cash-in refinance makes sense.
Avoid mortgage insurance
By doing a cash-in refinance, you can increase your home equity to at least 20%, which is usually the minimum down payment you must make to avoid mortgage insurance. If you refinance into a conventional loan, you can avoid mortgage insurance payments on your home in the future, if it is a primary property.
