Adjustable Rate Mortgage (ARM) FAQs

My ARM finance is scheduled to adjust rapidly, should I refinance now?

You may have seen your home equity line of credit mount substantially over the last two years. As rates dip, many homeowners are opting to pay slightly more for the benefit of having a permanent home. If you took an adjustable rate mortgage (ARM) instead of a fixed line of credit, your credit rating may have changed, offering you more options. You should explore your options with a credit professional no more than two or three months before your ARM is scheduled to adjust, especially if rising rates may make it harder for you to make payments.

Should I refinance to a fixed-rate ARM loan?

Although there are drawbacks, many homeowners have refinanced into ARM loans to take advantage of the flexibility the loans allow. One hazard associated with switching to an ARM is harmful amortization; your finance charges could go up over time. This change can happen as a result of choosing a low monthly payment based on a rate that is lower than your current rate. The difference between the two amounts will actually be added to your advance surplus. On the other hand, the fixed-rate ARM can be a good option for you if you choose to pay down credit debt. Offering the most payment flexibility, the flat-rate ARM offers three to four different payment options.

What is the benefit of refinancing my ARM to a fixed-rate loan?

There are drawbacks to both types of mortgages. If you decide to refinance your ARM into a fixed-rate loan, you will lock yourself into a fixed payment and dodge payment expansion that occurs when your ARM rate adjusts. For some credit holders the monthly payment could be raised by up to 50 percent making the option of locking into a fixed-rate a good way to lower your monthly payment. Refinancing an ARM to a fixed-rate mortgage credit will definitely lower the stress of steadily rising payments. However, depending on how long you have had your mortgage and how long you intend to live in your home, you might benefit from waiting until a change is absolutely necessary. Discuss your options with a mortgage professional before making a decision.

I have a sub-prime ARM finance, what are my options?

Many homeowners who have sub-prime ARMS to buy or refinance their homes are now being hit with payments that are uncomfortable or impossible to make. Most importantly, if you have a sub-prime ARM that has not adjusted yet, you should speak with a mortgage professional to learn the options you might have for a different type of loan. Refinancing out of a sub-prime ARM into a fixed-rate mortgage may be the best option if you have made payments on time for at least 12 months.