For the past few years, refinance fever has been fueled by a desire to get the lowest possible rate in a declining interest rate environment. And because the end of cheap rates was not in sight, many homeowners chose an adjustable rate mortgage, so that they could continue to enjoy lower rates into the future.

But now the situation has changed, and many people who chose adjustable rates are ready to shift gears in order to avoid paying higher interest if rates spike upward. Because interest rates are still near their historical lows, it still may be an excellent time to lock in a fixed rate.

Refinancing Your Mortgage

Your lender can assist you in doing the math to get an "apples to oranges" comparison of your existing loan with current loan options. For those who like an adjustable rate, but want to lock in a low rate for the next few years, a hybrid mortgage may be an appropriate choice because of the flexibility it offers. If you plan to live in your house only for three or four more years, the hybrid may be even better than a fixed rate, because the first years of a hybrid loan are generally charged at a lower rate than traditional fixed-rate loans. After a few years, however, the hybrid converts to an adjustable rate mortgage, and by then, rates may be too high for your liking.

Getting the Fix on a Fixed-Rate Mortgage

If you want to ensure yourself the predictability and security of paying the same interest rate for the life of the loan, a fixed-rate mortgage is a great choice. You'll be able to enjoy the current low rates for as long as you make payments on your house, no matter how high interest rates go.

Historically, interest rates have hovered near 10 percent, so it's not unreasonable to expect them to return to that double-digit territory as the economy cycles through a downturn. If you don't want to participate in that kind of inflation, there's no time like the present to opt out of an adjustable rate loan and settle into one that's not going to offer any unwelcome surprises.

Published on May 10, 2006