Is Your Adjustable Rate Mortgage Scheduled to Reset This Year?
If so, consider refinancing now to a fixed-rate mortgage.
If you’re like most ARM holders, you picked your current mortgage product because of the low interest rate and affordable monthly payment. But if your ARM is scheduled to reset, you may find yourself paying a higher interest rate – and thus a higher monthly payment – and that could mean a real strain on your finances.
If the thought of paying a higher interest rate worries you, consider these options:
Refinance to a Fixed-Rate Mortgage
Even though the interest rate you’ll get may be a bit higher than your current ARM rate, you won’t have to worry about the rate—and the payment—changing. With a Fixed-Rate Mortgage, your monthly payments stay the same throughout the entire life of the loan, allowing you to budget accordingly.
Refinance to a Hybrid ARM
Another option you might consider is a Hybrid ARM, such as a 3/1 or 5/1 ARM. Hybrid ARMs have a fixed interest rate for the first few years. For example, with a 3/1 ARM, the rate would be fixed for the first 3 years—and then change to an Adjustable-Rate Mortgage after that. They normally have lower rates than a 30-year Fixed-Rate Mortgage, and during the initial fixed period on these loans, your rate and monthly payment stays the same.
Refinance to an ARM with a less volatile index
All ARMs are based on a particular “index.” Some indexes move up and down more drastically than others. If your ARM is based on one of these more volatile indexes, you might consider refinancing to an ARM with a more stable index—one that reacts less drastically to interest rate swings.
Refinance to an ARM with Better Caps
Every ARM has a “cap,” which is the highest amount the rate and/or monthly payment can go up, from one adjustment period to the next. If you refinance to an ARM with better caps, you can decrease your risk of having to make astronomical payments if rates start to rise.
If your ARM is scheduled to reset, it can pay to plan ahead. Do your research and consider all your options.
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