If you have an ARM loan, you probably chose it to save money, and you probably did save money. Typically, interest rates for the popular 5/1 ARM run about one percent lower than those of 30-year fixed-rate mortgages.
But if your introductory period is ending, you may be concerned about future rate increases. You could head them off if you refinance your ARM to another ARM.Click to see today's rates (Jul 22nd, 2017)
You may be freaking out about the end of your introductory period with its low, fixed rate. And you might be sorely tempted to "set and forget" your loan with a new, fixed-rate mortgage.
You can certainly choose this product, but understand that you'll pay a price. And the reasons for choosing a new ARM over an fixed loan may be as valid now as they were when you got your current home loan.
Before you refinance your ARM, you need to know a couple of things:
If the answer to the last question is a resounding "no," get yourself to a lender and get yourself a fixed-rate refinance.
End of story.
However, if you're a good sleeper and expect to have your home and your mortgage for just a few years more, you may save a ton, again, with a new 3/1, 5/1, 7/1 or 10/1 ARM.Click to see today's rates (Jul 22nd, 2017)
Your first step is determining what would happen to your ARM if it were adjusting today, and what it's likely to do in the near future.
To do this, you need to look at your loan paperwork and find your loan's index, margin and caps.
Suppose you have Fannie Mae's popular 5/1 LIBOR ARM with two percent caps, a 1.5 percent margin and a five percent lifetime cap. Today's LIBOR index is 1.80 percent, so if your loan were resetting today, your new rate would be 3.3 percent. If your current rate is 3.0 percent, your increase is only .3 percent, and that new rate is good for another year.
But what about subsequent years? Here are a few more figures for you.
Right now, ARMs just don't look that scary.
Over the last 20 years, ARMs have performed pretty well for their borrowers. Here are the median values for some of the most widely-used ARM indexes.
Maybe after looking at ARM indexes and your own loan documents, you feel less worried about an impending reset. But if you want to extend your comfort zone a little, you can always refinance your ARM to a new one while rates are still low.
Current mortgage rates still represent very good value, and continue to make homeownership highgly-affordable in the US. Ask your mortgage lender to show you today's rates for fixed mortgages as well as ARMs fixed for three, five, seven or ten years.Click to see today's rates (Jul 22nd, 2017)
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2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)