Mortgage Refinance

Refinancing your Adjustable Rate Mortgage

Do you have an adjustable rate mortgage (or ARM)? Maybe you decided on one because you wanted to make sure you were getting the lowest possible interest rate in a declining interest rate climate. Or maybe you just couldn’t pass up the low, low interest rates that adjustable rate mortgages typically have, especially at the beginning.

But now many people who initially chose adjustable rate mortgages are opting to trade theirs in for something that is a little more predictable. Adjustable rate mortgages are great as long as interest rates remain low, but if they start to spike upward, those borrowers could be in big trouble. If the interest rates jump unexpectedly, they could be looking at mortgage payments that are hundreds of dollars more each month than what they started with.

The answer is to jump over to a fixed interest rate, and the time to do it is when interest rates are at an all-time low. This locks you into a mortgage interest rate that will never change over the lifetime of the loan. So even if you refinance and get an interest rate that is slightly higher than the one you are paying now, it could still make good financial sense to do so, since the adjustable interest rates may be fated to go much higher than any of the fixed rates right now.

Find a lender who can help you do an assessment of your current mortgage compared to what you could get if you refinance. Do a little research online, and take advantage of the many mortgage payment calculators there are out there to help you figure out if refinancing into a fixed interest rate is the right thing for you to do.

One thing you might want to consider before refinancing into a fixed interest rate mortgage is how long you plan on staying in your house. If you know you will be moving out of your house in 3-4 years, then you may want to opt for something called a hybrid loan. A hybrid loan is one that has a lower, fixed rate for the first few years of the loan, and then afterwards it converts into an adjustable rate mortgage. This way, you could pay a lower interest rate and then sell your house before the higher rates kick in. If however you know that you will be staying in your house for the long haul, then you probably want to refinance with a fixed interest rate. Again, it is best to consult with your lending professional to determine what the best course of action for you is.