Should I refinance my ARM into an FRM?


Many borrowers with an ARM wonder sooner or later - should I refinance my ARM into a fixed rate mortgage? It's no general answer for rates are changing and timing has to be good. In general, though, refinancing your ARM depends on several factors.

Deciding To Refinance Your ARM

Your current ARM rate, the date of the next adjustment, your margin and adjustment cap, the current FRM rates, and the fully indexed rate of your ARM index are the basic factors that will affect your ARM.

Clearly, your ARM should be refinanced asap if your ARM rate and the fully indexed rate (current index your ARM is tied to plus margin) are both higher than the currently advertised FRM rates.

If your current ARM rate and the fully indexed rate are both lower or about the same as FRM rates, refinancing can wait until the next reset date.

If your current ARM is lower and the fully indexed rate is higher (and vice versa) than the current FRM rates, you have to calculate how your rate will change on the immediate reset date. If on the reset date your resulting rate is below the FRM rate, no need to refinance yet. If on the reset date your ARM rate will be above the FRM rate, you have to calculate how much the ARM refinance will cost and how long it will take to break even. In this case you will need a breakdown of costs to determine should or shouldn't you refinance your ARM into an FRM.

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