Tips On Refinancing Your Home - When To Convert To an ARM

 


Visitors: 474

Common advice tells borrowers they should refinance their adjustable rate mortgage (ARM) to a fixed-rate mortgage. However, there are times when it makes better financial sense to do the reverse. The prime reason is that an ARM provides lower rates.

Low Interest Rates Of An ARM

An ARM’s primary benefit is a lower interest rate. Typically a couple of points lower than a fixed-rate mortgage, an ARM can save you thousands. The downside is that an ARM’s rates can rise.

However, if you are planning to move in a couple of years or expect rates to drop, then an ARM may be worth the risk. If you are worried about rising rates, you can select an ARM with rate and payment caps. There are also ARMs that convert to a fixed-rate after a preset number of years.

Smaller Payments With An ARM

An ARM can also give you smaller payments temporarily through lower rates. Even though these payments may rise, you can expect your wages to increase with the rate of inflation as well.

If you need some temporary breathing room in your budget, you may find that an ARM can help. There is always risk with this option, especially if you are planning on a promotion or career change in the future.

Considering The Costs

While lower interest rates can save you money, the loan costs can eat into your financial savings. Loan fees can easily add up to $3000, in addition to points. The general rule of thumb is that after three years, you will be saving money on the refinance deal.

There are times when you can see a savings earlier, especially if rates are more than two percent lower or you find a low cost refinancing deal.

To really know if you will save by refinancing, you need to research rates. Ask for quotes from several lending institutions. Then figure out your interest payments with the help of a mortgage calculator. Compare these with your current interest charges, and you will know what type of savings to expect. Subtract the loan fees and points, and you will find if you can come out ahead in the end.

To view our list of recommended lenders online for refinancing your home mortgage, visit this page: Recommended Refinance Lenders Online .

Carrie Reeder is the owner of ABC Loan Guide , an informational website about various types of loans.

(433)

Article Source:


 
Rate this Article: 
 
6 Tips To Help Your Home Refinancing Decision
Rated 4 / 5
based on 5 votes
ArticleSlash

Related Articles:

I Want to Refinance an ARM to Fixed Rate Refinancing Your ARM Examined

by: Darin Sewell (July 29, 2008) 
(Finance/Mortgage Refinance)

When Refinancing Your Home - An ARM Or A Fixed Rate?

by: C.L. Haehl (March 30, 2007) 
(Real Estate)

Home Mortgage Loan Refinancing Online - 3 Tips on Refinancing Your Home

by: Carrie Reeder (August 31, 2005) 
(Finance/Mortgage Refinance)

Having ARM Home Loan Trouble How to Get Out of ARM Home Loans Even When You ..

by: Darin Sewell (July 25, 2008) 
(Finance/Mortgage Refinance)

Choose a Fixed Rate or ARM When Refinancing

by: Frank Collins (May 29, 2007) 
(Real Estate)

Adjustable Rate Mortgage Refinancing: Is it Time to Trade in Your ARM?

by: Louie Latour (November 18, 2006) 
(Real Estate)

Refinancing After Bankruptcy - Tips on Refinancing Your Home Mortgage After a ..

by: Carrie Reeder (October 17, 2005) 
(Finance/Mortgage Refinance)

Refinance ARM Loan Tips - How to Choose Between a Fixed Rate Or ARM Loan

by: Darin Sewell (July 22, 2008) 
(Finance/Mortgage Refinance)

Tips on Refinancing Your Home

by: Carrie Reeder (November 09, 2005) 
(Finance/Mortgage Refinance)

6 Tips To Help Your Home Refinancing Decision

by: Susan Chen (December 13, 2006) 
(Real Estate)