When and how to refinance an adjustable rate mortgage (ARM)?


People want to refinance an adjustable rate mortgage when the fixed rate period is going to expire soon. If that is the case for you, you may like to know what your plans are before you decide whether and how to refinance.

  1. Do you want to keep this house?

    If you want to keep your house, you may want to refinance the adjustable rate mortgage into a fixed rate one and stop worrying whether your monthly payment will increase, or not. If you want to refinance the ARM into an FRM, consider accelerated amortization plans, such as the biweekly programs to save on interest and build equity faster.

    However, the times when rates needed to rise or drop with 2% to refinance no longer make sense. Nowadays, refinancing is plausible any time there is a good idea and solid calculations behind it. Therefore, you could refinance an adjustable rate mortgage into another ARM if that makes sense to you.

  2. Do you want to keep the house only for a few more years?

    If the lender you have the ARM with still holds your loan, they may agree to extend the fixed period or streamline refinance your adjustable rate mortgage into another ARM, to keep your business. However, if your ARM was sold to another lender, you may have to go shopping for another loan to refinance.

    Also, if you are certain you are not keeping the house in the long run and you still have prepayment penalty, to refinance the adjustable rate mortgage may be costly but it does not make sense to pay principal on a house you are not going to keep. In this case, you may have to make some more calculations to decide whether to sell, refinance or keep the adjustable rate mortgage as it is.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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