Should you refinance an adjustable rate mortgage?

Answer 1

In deciding whether to refinance an adjustable rate mortgage (ARM) you should consider these questions: Is the next interest rate adjustment on your existing loan likely to increase your monthly payments substantially? Will the new interest rate be two or three percentage points higher than the prevailing rates being offered for either fixed-rate loans or other ARMs? If your current home loan sets a cap on your monthly payments, are those payments large enough to pay off your loan by the end of the original term? If you refinance to a new fixed or adjustable rate mortgage, will that enable you to pay your loan in full by the end of the term? Many people are afraid of ARM's because a friend of a friend who is in the mortgage business who they know said so, many people just assume these types of loans are dangerous because of the keyword "adjustable". This is not true in most cases. ARM's can be very beneficial to people in the right circumstances. People who are buying a home who may have bad credit or just had a bankruptcy. They are going to rebuild their credit over the next few years, so why go into a long-term 30-year fixed loan if you will probably refinance in 2-5 years when your credit has been rebuilt? Why not go for a 5-year adjustable? Not all adjustable loans start off as ARM's, for example the 5 year adjustable is actually fixed for 5 years at a much lower rate than a 30 year fixed. The 5-year is amortized over 30 years as well and begins to adjust only after the 5-year period is over, you can refinance before the adjustment hits. It's also beneficial to people who may sell their home in the next few years. Or people who need to pay off a large debt. Interest Only loans are also a great alternative, where you only pay the interest on the loan. For Self-Employed people that have fluctuating income periods. For example people who may not make as much during the spring and summer but make significantly more money in the winter. There are MTA loans that are adjustables where you pick your payment from month to month. One month you make an interest only payment, another month you make a basic minimum payment, another month you can make a fully amortized payment and on and on. The rates start off very low, some as low as 1.25%. MTA loans are not for the average person though. They adjust on either a monthly basis, or 3 and 6 months. There are many other benefits and downsides as well. Make sure to ask your mortgage consultant to explain them to you until you understand it as well as he/she does. If they try to confuse you with unfamiliar terms then go elsewhere. You need to feel as good about the deal as they do.