How To Refinance Your Adjustable Rate Mortgage To A Fixed Rate Mortgage

Have you enjoyed the benefits of having an adjustable rate mortgage but find your loan expiring soon? With interest rates rising steadily this year, and Federal Reserve analysts predicting at least two more increases before the end of this year, don’t risk your loan adjusting up and facing a bigger monthly mortgage payment.

How much can an adjustable rate mortgage go up after the fixed period is over?

If your home was financed with an adjustable rate mortgage while rates were below 4%, you could receive a surprise when the rate adjusts to current mortgage rates when it terms. Fortunately, there is a cap on how much the interest rate can increase during the initial adjustment period. There is also a lifetime cap on your mortgage interest rate if you decide to hold and not refinance.

Here’s an example scenario to show how this works: A 5/1 ARM has a fixed interest rate for the first five years. After five years, the rate can adjust once every year for the remaining life of the loan. If rates have increased over the past year, your monthly payments will increase; however, if rates go down, your payments may not decrease, depending upon your initial interest rate.

Most ARMs also typically feature an adjustment "cap" which limits how much the interest rate can go up or down at each adjustment period. For instance: A 7/1 ARM with a 5/2/5 cap structure means that for the first seven years the rate is unchanged, but on the eighth year your rate can increase by a maximum of 5 percentage points (the first "5") above the initial interest rate. Every year after that, your rate can adjust a maximum of 2 percentage points (the second number, "2"), but your interest rate can never increase more than 5 percentage points (the last number, "5") over the life of the loan.

Should you refinance from an adjustable rate mortgage to a fixed rate mortgage?

If the initial fixed rate period of adjustable rate mortgage is expiring soon, now is the perfect time for a professional review of your current loan program to determine if you would benefit from refinancing into a fixed rate mortgage before your current interest rate expires and adjusts to a higher interest rate, or if another adjustable rate mortgage would suit you better. With home values up nationwide, refinancing your home loan also provides an opportunity to finance home renovations or repairs, debt consolidation or to pay for college tuition, if you have sufficient equity in your home.

What have you got to lose? Contact a Certainty Home Loans mortgage professional in your state for a no-obligation loan review today.
- Jul 23, 2018