Practical Numbers

Should you Refinance your Adjustable Rate Mortgage?

This is a relevant topic right now, especially with so many ARM loans hitting their adjustable rate period.
If you started with something like a 5/1 ARM, it had a fixed rate at 4.7% for 5 years. The 5 years have just passed, you are now at an adjustable rate, currently around 3.25%. You look into refinancing, maybe a 30-yr fixed around 5% with $9000 in closing costs. Should you refinance?
The answer is: It depends!
Are you moving or changing homes in the next 5 years?
What are the conditions on your current variable rate loan? 

If you are not moving in the next 15 years or more, it is simple, just refinance. If not, then you might as well run the numbers. This calculator below gives you an idea on what to expect your costs to be over the next few years:

Existing Loan   New Loan
Current Balance ($)   New Interest Rate (%)
Current Interest Rate (%)   Length of loan  yrs
Years left on loan  yrs
  Closing Costs ($)
Maximum rate rise per year (%)   Additional money/cash out ($)
Maximum rate for life of loan (%)
New Principal on Loan:
Tip: For the "Maximum rate rise per year", if you use the number from your loan documents, you will be assuming worst case scenario. You might want to also try the numbers using a rate you consider more realistic, do you think going up 2 points a year is feasable in this economy?
point where adjustable monthly payment exceeds fixed rate payment
total paid so far on adjustable loan exceeds fixed loan
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