CU One News

Should You Refinance Your Adjustable Rate Mortgage?

2-5-08

With interest rates moving daily, you may have given some thought as to what impact increasing rates might have on your adjustable rate mortgage, in both the near and long-term future.

How long you intend to live in your home with an adjustable rate mortgage might be the most important factor to consider, if you are thinking about refinancing to a fixed rate loan. Most experts agree that if you plan on being in the home for only a few years - roughly three to five - then it probably makes financial sense to stick with your ARM. It just depends on what your acceptable risk factor is, and if you think mortgage rates will go up in the coming months.

However, if you are in a starter home with plans to move up, or if you will be down-sizing in the next 3-5 years, then investigating a fixed loan while rates are still below 6 percent is a good idea. Even if you plan on staying in the house for longer, you may still want to run a few financial scenarios to know what your options are. Some of these include:

Convert your adjustable rate mortgage to a fixed rate for 10-30 years. This may be a good option if you believe interest rates will increase significantly in the years ahead. If you do decide to refinance to a fixed rate loan, stick with your current lender. You may find that you're able to reduce the paper work required and perhaps save money for things such as new appraisals and credit reports.

Refinance to another Adjustable Rate Mortgage. Depending on your current rate, you may even want to look at refinancing to a new ARM with a lower rate if you plan to sell your home in the next several years.

Convert to a Balloon Mortgage. With low interest rates, a balloon mortgage with a fixed rate of 5 to 7 years might also be a good choice if you wish to reduce your monthly mortgage payment. Some balloon mortgages allow you to modify to a fixed rate at the end of the initial term for a nominal fee.

The best thing is to keep an eye on 10-year Treasury Note rates because it's the benchmark that fixed rate loans are based on. And, stay in touch with your Loan Officer. With all the mortgage options available today, you should continually ask your Lender if your current loan program is right for your financial objectives. Don't be passive about the biggest investment of your life - take frequent looks to make sure it's working for you. Your credit union's Loan Officer is here to help with no-obligation consultations and comparisons to make your mortgage work best for you. Contact us today!