Reasons to Refinance an Adjustable Rate Mortgage

How do you know whether you should refinance out of your adjustable rate mortgage (ARM)? Before you decide, it should be clear what your purpose for refinancing is so that you can be sure your mortgage is still meeting your financial needs.

There are several reasons people need to refinance their adjustable rate mortgage:

1. Lowering your interest rate and monthly payment
2. Getting cash out of your home equity
3. Switching from an adjustable to a fixed interest rate
4. Consolidating to eliminate high-interest debt

1. Lowering Your Rate and Payment

Many people refinance their ARM to lower their interest rate.  Interest rates change with time, so a lower rate may be available today, which may not have been available for your original mortgage. If you refinanced to a lower interest rate, you would subsequently be lowering your monthly mortgage payment and possibly saving yourself some money.

2. Getting Cash Out

Refinancing can be more than just lowering your interest rate. Getting cash from your home equity is another big reason to refinance. You may need to make some improvements on your home like adding a bathroom or updating your kitchen. Or you may need money to start the business of your dreams.

There are many reasons you might refinance out of your adjustable rate mortgage. The best thing to do is to speak to an experienced home loan expert. Ask a lot of questions so that they can find the right mortgage that fits your needs.

3. Getting a Fixed Rate Mortgage

When you consider refinancing your ARM, you have to consider the current mortgage environment. Are rates going up or down? Right now, short-term rates have remained at a constant level. But that could change at any time.

You also have to know whether the rate on your ARM is about to adjust. If it is, it could go up. Or you may have been in a situation where you needed a short-term mortgage, but now are ready to move to a long-term mortgage.

If you're don’t like the idea of your rate (and payment) changing, you may want to move from an ARM to a fixed-rate mortgage. A fixed-rate mortgage will guarantee that your rate and payment won't fluctuate for up to 30 years.

4. Consolidating Debt

Consolidating high-interest credit card debt is another good reason to refinance your ARM. If you have a lot of credit card debt that you want to get rid of, it's a smart idea to use your mortgage to do it-the interest on your credit cards is most likely higher than the interest rate you could get on a mortgage. Plus, mortgage interest is tax-deductible* whereas credit card interest is not. That can be a great advantage and could save you more money.

*As always, please consult your tax advisor.