| make fixed rate loans difficult to obtain. The borrower benefits if the interest rate falls and loses out if interest rates rise. Variable home improvement refinancing mortgages are the most common form of loan for house purchase in the United Kingdom but are unpopular in some other countries. Variable rate mortgages are very common in home improvement refinancing and New Zealand. For those who plan to move within a relatively short period of time (three to seven years), they are attractive because they often include a lower, fixed rate of interest for the first three, five, or seven years of the loan, after which the interest rate fluctuates. Adjustable rate mortgages, home improvement refinancing other types of mortgage, may offer the ability to repay principal (or capital) early without penalty. Early payments of part of the principal will reduce the total cost of the loan (total interest paid), and will shorten the amount of time needed to pay off the home improvement refinancing Early payoff of the entire loan amount (refinancing) is often done when interest rates drop significantly. Adjustable rate mortgages are sometimes sold to unsophisticated consumers who are unlikely to be able to repay the loan should interest rates rise, which they often do. In the United States, extreme cases are characterized by the Consumer Federation of America as predatory loans. Protections against interest rate rises include (a) a possible initial period with a fixed home improvement refinancing (which gives the borrower a chance to increase his/her annual earnings before payments rise); (b) a maximum (cap) that interest rates can rise in any year (if there is a cap, it must be specified in the loan document); and (c) a maximum (cap) that interest rates can rise over the life of the mortage (this also must be home improvement refinancing in the loan document). Refinancing may be undertaken to reduce interest costs (by refinancing at a lower rate), to pay off home improvement refinancing debts, to reduce one's periodic payment obligations (sometimes by taking a longer-term loan), to reduce risk (such as by refinancing from a variable-rate to a fixed-rate loan), and/or to liquidate some |
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