Refinancing an ARM

If you are considering an ARM for a fixed rate mortgage (FRM), there will be a few things you need take into consideration. You first should know the latest interest rates for FRM’s. Look at this interest rate side by side with your ARM. How does it compare? If it’s less and you can afford the cost of refinancing, you really should refinance.

Whether or not you go through with refinancing will have a little to do with how long you plan to live in your home. If that time frame is less than five years, then it isn’t really worth it to refinance your ARM. The cost of refinancing your home makes null and void any benefit you may get from a drop in your monthly mortgage payment. If you plan to keep your home longer than five years though, then refinancing is well worth keeping in mind.

However, if the FRM interest rate exceeds that of your current ARM, which it typically is, there are more factors that you should be thinking about. While there are ways of estimating, there is no way of really knowing what ARM interest rates will be doing in the future. They may raise and stay that way, they may decrease and stay there, or they could fluctuate for as long as you have your loan. Since markets have a way of correcting themselves, it may be beneficial to wait out the increase if you can. If interest rates are rising to the point that it starts to affect your pocketbook, then refinancing is well worth thinking about given how the FRM is comparable with percentage points of the ARM.