Should You Refinance Your ARM To A Fixed-Rate Mortgage? Bankrate Caret RightMain Menu Mortgage Mortgages Financing a home purchase Refinancing your existing loan Finding the right lender Additional Resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Bank Banking Compare Accounts Use calculators Get advice Bank reviews Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Credit Card Credit cards Compare by category Compare by credit needed Compare by issuer Get advice Looking for the perfect credit card? Narrow your search with CardMatch Caret RightMain Menu Loan Loans Personal Loans Student Loans Auto Loans Loan calculators Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Invest Investing Best of Brokerages and robo-advisors Learn the basics Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Home Equity Home equity Get the best rates Lender reviews Use calculators Knowledge base Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Loan Home Improvement Real estate Selling a home Buying a home Finding the right agent Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Insurance Insurance Car insurance Homeowners insurance Other insurance Company reviews Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Retirement Retirement Retirement plans & accounts Learn the basics Retirement calculators Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Advertiser Disclosure
Advertiser Disclosure
We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free - so that you can make financial decisions with confidence.
Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money
The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you. SHARE: On This Page
MoMo Productions/Getty Images April 20, 2022 Checkmark Bankrate logo How is this page expert verified? At Bankrate, we take the accuracy of our content seriously. "Expert verified" means that our Financial Review Board thoroughly evaluated the article for accuracy and clarity. The Review Board comprises a panel of financial experts whose objective is to ensure that our content is always objective and balanced. Their reviews hold us accountable for publishing high-quality and trustworthy content. Suzanne De Vita is the mortgage editor for Bankrate, focusing on mortgage and real estate topics for homebuyers, homeowners, investors and renters. Robert R. Johnson, Ph.D., CFA, CAIA, is a professor of finance at Creighton University and chairman and CEO of Economic Index Associates, LLC. Bankrate logo The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. Bankrate logo The Bankrate promise
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our mortgage reporters and editors focus on the points consumers care about most — the latest rates, the best lenders, navigating the homebuying process, refinancing your mortgage and more — so you can feel confident when you make decisions as a homebuyer and a homeowner. Bankrate logo Editorial integrity
Bankrate follows a strict , so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. Key Principles
We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers. Editorial Independence
Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo How we make money
You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. If you’re nearing the end of the initial term on your (ARM), you might be wondering if now is a good time to , and whether you should switch to a fixed rate. Although mortgage interest rates have risen substantially from the lows reached in 2021, it still might be a good idea to switch to a fixed rate, if only for the stability of a fixed payment. “The idea of trading away the uncertainty of an adjustable-rate mortgage for the certainty of a fixed-rate mortgage is appealing, especially if you’re expecting an adjustment in the next year or two,” explains Greg McBride, CFA, chief financial analyst for Bankrate.
Can you refinance an ARM
Like many types of loans, you can . When you refinance an ARM, you replace your existing loan with a brand new one. In simplest terms, you’ll go through the preapproval and underwriting process with a mortgage lender — it could be your — as well as the appraisal process to determine your home’s value. Once all the paperwork is complete, you’ll hand over a check for the closing costs, and you’ll have a new mortgage with new terms.
Is now a good time to refinance an ARM
Mortgage rates are low by historical standards, but generally increasing, so now may be a good time to refinance before rates climb higher. The ideal timing for you depends on your unique financial situation. You’ll want to consider factors such as: Credit score: Do you have a strong enough credit score to obtain a competitive interest rate? Financial goals: Would rather prioritize another goal such as paying off high-interest debt? Longer-term plans: Will you stay in the home long enough for you to exceed the break-even point on your closing costs? Ability to afford closing costs: Will the burden of paying closing costs outweigh the benefits of a lower monthly payment? How is your credit
Refinancing isn’t an automatic money-saver. You need to have strong credit to qualify for the lowest rate and the biggest savings opportunity. If you’ve been making timely payments on your ARM, that should be helping elevate your credit score. “Someone coming up on the end of an ARM presumably has five or more years of timely mortgage payments on their credit history,” explains Austin Kilgore, director of Corporate Communications at the Freedom Financial Network. “There’s a good chance their credit score is better now and they may qualify for something better.” If your credit could use some work, however, it’s best to wait to refinance until you’ve improved your score. Check your credit report for any errors, such as incorrect contact information — and if something’s amiss, contact the credit reporting agency as soon as possible to get it fixed. If you can, pay down or pay off other debt, and continue to make credit card and other loan payments on time each month. What are your goals
In addition to locking in a low rate, think about any other goals refinancing can help you achieve, such as , doing a or . While a cash-out refinance increases the amount you owe, you’ll be able to use the funds for home improvements or other expenses or goals. Keep in mind, too, that you aren’t the only one thinking about refinancing these days. Refinances accounted for 38.8 percent of applications recently, according to the Mortgage Bankers Association, and as of April 2022, the average time to close a refinance was 48 days, according to ICE Mortgage Technology. If your lender is swamped with other applications, the process could take longer than you expect, which could factor into your decision. How long are you planning to stay in your home
If you have no intention of moving or selling your home anytime soon, refinancing into a fixed-rate mortgage can be a smart decision. If a move is on your near-term horizon, however, it’s likely not worth the . For example, if you’d save $100 on your monthly mortgage payment by refinancing, and the closing costs are $2,000, it’d take you 20 months, or close to two years, before you really start to see savings. Bankrate’s can help you run the numbers for your situation. “If you’re only looking at being at home for three or four more years and you have four years before it resets, and a new loan is not at least three-eighths of a basis point lower than your current rate, you might as well stay in your ARM,” advises Ralph DiBugnara, founder of Home Qualified, a digital resource for homebuyers and sellers. “There’s no financial benefit to move forward into a fixed rate.”
Should I refinance my ARM to a fixed rate
At the very least, you should think about refinancing your ARM to a fixed rate if current mortgage rates are lower than the rate you’re paying and you’re nearing the end of the initial term on your ARM. The rate isn’t the only piece of the puzzle, however. Consider the following: How much could you pay when your ARM resets? Make sure you have a clear understanding of the annual cap and the lifetime cap on your ARM. The annual cap will give you an idea of how much the rate could increase when it resets, and the lifetime cap is the maximum allowed for the entire duration of the loan. Are you paying off an interest-only ARM? If your ARM included an interest-only introductory period, you’ve only needed to pay the interest, not the principal. Your payments will rise significantly when you have to pay down the actual loan, so it may be smart to refinance to a fixed-rate option.
Benefits of a fixed-rate mortgage
If you’ve never had a fixed-rate mortgage, here are the key upsides of this type of loan: Your payments are always the same. A fixed-rate mortgage gives you the certainty of predictable payments. Rather than wondering how the market will impact your payments on an ARM, a fixed-rate option never changes for the entire loan term. You can more easily. With a fixed-rate loan, you can plan for a stable housing payment. You still have options. If a 30-year mortgage sounds like a lifetime, you can also look at a . The rates on this type of loan are even lower, but the tradeoff is that you’ll have higher monthly payments due to the accelerated timeline.
What about refinancing an ARM to another ARM
Refinancing doesn’t have to involve switching to a fixed-rate mortgage — you could refinance your existing to a new ARM. Just because you can doesn’t mean you should, though. In today’s low-rate environment, you could be paying more with an ARM, so it’s imperative to compare current rates on both ARMs and fixed-rate options. Bottom line
Refinancing an ARM to a fixed-rate mortgage can be a wise investment in your financial future, potentially saving you thousands in lower monthly mortgage payments over the life of the loan. Not only that, you’ll be spared the uncertainty and stress that may accompany a fluctuating mortgage rate. Before you make your decision, you’ll need to take a holistic look at your financial situation and consider factors like your credit score, financial goals, and ability to afford closing costs. SHARE: Suzanne De Vita is the mortgage editor for Bankrate, focusing on mortgage and real estate topics for homebuyers, homeowners, investors and renters. Robert R. Johnson, Ph.D., CFA, CAIA, is a professor of finance at Creighton University and chairman and CEO of Economic Index Associates, LLC. Related Articles