Refinancing To ARM From Fixed Rate To Lower Mortgage Rates
This BLOG On Refinancing To ARM From Fixed Rate To Lower Mortgage Rates Was Written By Michael Gracz of Gustan Cho Associates
ARM stands for adjustable rate mortgages.
- Adjustable rate mortgages are 30 year term loans with an initial fixed rate period
- Mortgage rates adjusts every year after the initial rate period every year for the remaining 30 years
- There are pros and cons with adjustable rate mortgages
- With fixed rate mortgages, rates are fixed for 30 year term
- Once the homeowner pays the principal and interest, which cannot change for the 30 year period, the loan is paid off
- With adjustable rate mortgages, even if interest rates changes the mortgage loan gets paid off in 30 years
- The difference with adjustable rate mortgages is that the principal and interest may change year after year after the initial fixed rate period
- Homeowners thinking of refinancing to ARM instead of a 30 year fixed rate mortgage, need to think about how long they intend on staying in their home
- Again, there are pros and cons in refinancing to ARM versus a 30 year fixed rate mortgage
Basics Of Adjustable Rate Mortgages
The way adjustable rate mortgages work is that there is an initial fixed rate period and after the fixed rate period expires, rates can adjust every year for the balance of the 30 years.
- The way adjustable rate mortgages are calculated is by adding the index to a fixed margin where it yields the mortgage rate
- The margin is a fixed rate and will remain constant for the 30 year mortgage loan term
- The index changes
- Lenders choose which index they will base the mortgage loan on
- For example, on a 5/1 ARM, borrowers will get a fixed rate for the first 5 years of the term of the mortgage loan and on the sixth year and thereafter, the mortgage rates will adjust depending on the index
Benefits Of Refinancing To ARM Versus Fixed Rate Mortgages
The right hand rule in refinancing to ARM instead of a 30 year fixed rate mortgage loan is if you do not intend in living in your home for a long time.
- Adjustable rate mortgage loans have much lower mortgage rates than 30 year fixed rate mortgages
- Many home buyers who purchase a starter home and do not intend in living in their new home purchase for more than five to ten years may consider financing to an ARM
- Homeowners who have a higher interest rate and when rates drop may want refinancing to ARM if they do not intend in living in their home for more than five to ten years
- Adjustable Rate Mortgages are normally more than 0.50% less than 30 year fixed rate mortgage rates
Refinancing To ARM Due To Lower Rates
Those homeowners who are looking for the lowest principal and interest monthly payments may want to consider refinancing to ARM instead of a standard 30 year fixed rate mortgage due to the lower rates on adjustable rate mortgages. Lower mortgage rates yields lower principal and interest payments.
Mortgage rates are at a historical low still. There is talk and rumors that the Federal Reserve Board is going to be raising interest rates again this year. Homeowners needing an analysis in refinancing their current home loan, please contact us at Gustan Cho Associates at 630-659-7644 or text us for faster response. Borrowers can also email us at email@example.com. We are direct lenders with no overlays on government and conforming loans. We are available 7 days a week, evenings, holidays, and weekends included to answer all of your mortgage refinance questions. We can do an analysis on which mortgage loan program is best for you, whether it is refinancing to ARM or refinancing your home loan to a fixed rate mortgage loan.