Refinancing an Adjustable Rate Mortgage (ARM)

Are you a good candidate for refinancing your adjustable rate mortgage?

ARMs, or adjustable rate mortgages, have been very popular in recent years, particularly for first-time home buyers.  The concept of an ARM is to allow buyers to afford a home and a mortgage at a very low interest rate.  This low rate period usually lasts anywhere from five to maybe even ten years, but once the ARM is ready to be adjusted, the rate can skyrocket, sometimes even double, increasing the monthly mortgage payment for the buyer.

Refinancing an ARM is a great way to help convert that adjustable rate into a fixed rate.  There are many benefits to this, particularly the benefit of a stabilized mortgage payment.  It is important to remember, however, that by refinancing an adjustable rate mortgage, your rate will still most likely increase from the original introductory rate, but it will be nowhere near the rate that would be incurred if you were to allow your ARM to readjust.  Those interested in refinancing an ARM should also keep in mind that there will most likely be some closing and other costs involved in the process. Nonetheless, it’s usually a wise choice, as you’ll soon save the equivalent of whatever you pay in closing costs.

When refinancing an adjustable rate mortgage, it’s important to consult a professional who can help ensure you get the best newly fixed rate possible.  Often, credit plays a factor as well as your previous payment history and the equity that has built up in your home.  The length of time you plan to spend in your home is also a factor.  Often, lenders tend to help refinance those who are not planning on selling more so than those who want to refinance and then attempt to turn around and sell the property.   The benefits of refinancing an ARM are very clear: no longer will you have to worry about your interest rate changing, and you will have a mortgage payment that you can afford that will not change.