When to Refinance an ARM Loan into an FRM
Differences Between an ARM and a FRM
ARM loans have interest rates that adjust occasionally over the course of the loan, depending on a number of indices. These loans usually offer borrowers lower initial monthly payments in exchange for the risk of increased rate changes.
FRM loans have interest rates that remain fixed throughout the life of the loan, typically 30 years in length, though a borrower may get a shorter term on the loan. With a 30-year term at a fixed rate, the monthly mortgage payments would be lower than with a shorter-term loan.
Should I Refinance my ARM Loan?
Here are some questions you need to ask yourself before you refinance your ARM loan.
- Will the next rate adjustment increase monthly payments substantially?
- Will the new rate be above current rate offers for fixed or other ARMs?
- Is there a cap on monthly payments with the current loan?
- Will those payments be large enough to pay off the loan at the end of term?
- Will refinancing to a FRM loan provide the opportunity to pay in full by the end of term?
Here are some tools to help you decide whether you want to refinance your mortgage.
