Do I Need to Refinance My ARM?
In the current market, many homeowners have an adjustable rate mortgage (ARM) which are going to begin adjusting this year. Presently, one of the most common reasons for a refinance is to switch the ARM to a more stable fixed rate. A refinance is one option in which you can take control of your mortgage rate, and monthly mortgage payment. If you have an ARM, and are considering a refinance, here are a few things you will want to consider.
1. How much will the new adjusted rate raise my monthly payment? You will need to do a little bit of research to figure this out, either by calling your lender, or reviewing your loan papers. If your rate is going to go up a few percentage points, this can raise your monthly payment substantially. For example, consider to following scenario:
$300,000 loan amount @ 3.75% = $1390 monthly payment
After 5 years, the ARM will adjust by 1.5%
$300,000 loan amount @ 5.25% = $1655 monthly payment
Difference of $265 more a month
In this scenario, if $265 raise in the monthly payment is too much for the homeowner, a refinance might be in order. The amount an ARM will adjust is unknown, which can be an unsettling when trying to budget for the monthly payment. Many homeowners look to a refinance to secure the fixed rate, and fixed monthly mortgage payment.
2. What if I can’t cover the cost of a refinance? If you are worried about closing costs, negotiate with your loan officer, and often times we can work something out to get those lowered. Often times lenders will offer a rebate on a rate, which is a percentage of the loan amount, and can be credited towards your closing costs. For example:
$300,000 loan amount, 30 year fixed rate of 5% with a rebate of (.875%)
Closing costs estimated at $3,000
.875% rebate = $2,625
New closing costs after rebate credit = $375
As you can see, by negotiating with the lender, it might be possible to save yourself hundreds of dollars on closing costs. But remember, rates/rebates change everyday, so please be sure to verify if this is an option for you.
As always, when considering an important decision like a refinance, be sure to consult your mortgage professional and review your options. If you are interested in more information, check back in all this week as I will be posting various topics relating to a refinance.