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:
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?
| Legend: |
| point
where adjustable monthly payment exceeds fixed rate payment |
| total paid so far on
adjustable loan exceeds fixed loan |