Jun 22 2007
Got an ARM getting ready to adjust? Should you refinance?
Generally, an adjustable rate mortgage (ARM) is a great mortgage program choice for some who have plans on keeping their home for a short period of time. However, most homeowners I talk to regarding refinancing out of an adjustable rate mortgage; have had a change of plans. With today’s higher interest rates does it really make sense to jump in and pay closing costs and start a property tax and homeowners insurance escrow account all over again with refinancing? Check how your interest rate will adjust first.
Did you know that some, conventional, 5/1 and 3/1 adjustable rate mortgages have interest rate Caps of just 2%? This means your current low interest rate cannot increase by more than 2% during the first adjustment. You might want to compare what your adjusted interest rate would be and compare it to today’s fixed rates. Many home buyers obtained interest rates in the 3.5%-4.5% range over the past few years. Even if their rates adjusted they may still be lower than today’s fixed rates.
To learn what your newly adjusted interest rate would be; simply add the (fixed) Margin to your (variable) Index. The fixed Margin can be found on your Adjustable Rate Rider that you signed at closing and is usually 2.25% – 2.75%. A popular Index is the LIBOR, London Inter-Bank Offered Rate, which can be found on the same Adjustable Rate Rider. If you need help in determining if refinancing is the best option; make sure you contact a mortgage professional for advice.