The ARM or Adjustable Rate Mortgage is a great option for many home buyers and in specific types of markets. As this mortgage matures, it will periodically adjust based on an index that tracks rates.
There is a limited risk to the lender with an adjustable rate mortgage, while at the same time there are also several advantages for the borrower. These are typically lower cost mortgages and, when interest rates are falling, the borrower gets the advantage of paying less on the loan without having to go through the hassle of refinancing.
The drawback is that when interest rates rise, the ARM payment will also increase. If a borrower is planning on staying in the home and has an ARM when interest rates start climbing it is a good time to consider the option to refinance an adjustable rate mortgage to a fixed rate.
Often people with an ARM are initially surprised by the payments required with a fixed rate mortgage. Those considering a fifteen-year fixed will typically see a considerable rise in the monthly payment combined with the cost of the refinance.
However, by locking in the fixed rate early as the rates climb, it is possible to minimize this increase. The longer that a homeowner waits to refinance an adjustable rate mortgage the higher the payments.
Time Until a Sale
It will also be important to consider the time you will be in the home before making a move to refinance an adjustable rate mortgage. Interest rates tend to increase slowly and, if a homeowner is going to sell in a few years, the cost of the refinance may not end up saving any money.
Take a close look at the current mortgage and the adjustments or caps on the ARM. This will also be an important consideration as it may allow you a few more years with the ARM before a refinance makes sound financial sense.
To learn more about the timing to refinance an adjustable rate mortgage, visit Guaranteed Rate online. We are easy to find on the web at www.guaranteedrate.com.