Refinance My ARM or Let it Ride?

September 10, 2010 By Leave a Comment

Should I Refinance?When adjustable-rate mortgages are on the verge of adjusting, a common concern among my Arizona clients is that their mortgage rates will adjust higher. From time to time I get asked the question about whether I think someone who has an ARM should refinance now, or wait.

I’m not a loan officer so giving this kind of advice isn’t something I typically do. What I suggest is that you speak to a loan officer, and even your financial planner or adviser if you have questions. But, that said, I will offer a few little tidbits – after all I do love to pass what I know along.

What is bringing on all these questions about refinancing ARM’s is the wonder about the economy and that mortgage interest rates are so low at time – September 2010. Interests are definitely low right now and from what I know about ARM rates, especially from those mortgages that were gotten several years ago, are very attractive at the moment.

So with low rates, should someone refinance out? The answer really depends on your comfort level in playing with rates as well as your personal situation in relation to your long and short term financial goals.

  • In general, if you can refinance and get into a fixed rate with rates as low as they are, you can do yourself a long term favor by locking in a very low fixed rate for the long haul.
  • If you are not planning on staying in the home very long you may want to just hang with your current ARM so you don’t erode any more of the equity in your home as your prepare to sell your home.
  • Even if you are planning on selling your home (if you are planning on selling by the way you and I should be on the phone setting up a listing appointment) and you are worried about interest rates going up you may want to consider refinancing to save yourself some stress – that is if you have sufficient equity (or money in the bank to pay for closing costs).

So like I started out this post, I recommend that you consider talking to your loan officer and/or financial adviser and making a plan. With mortgage rates as low as they’ve been in history, most homeowners, even some of us in Arizona, have options.  Just don’t wait too long. LIBOR — and mortgage rates in general — are known to change quickly.

Filed Under: Adjustable Rate Mortgages Tagged With: , , , , , , ,

Should You Refinance Adjustable Rate Mortgages (ARMs), Or Let It Adjust Lower?

July 14, 2010 By Leave a Comment

ARM adjustment schedule 2008-2010

If your adjustable rate mortgage is due to adjust this year, don’t go rushing to replace it just yet. Your soon-to-adjust mortgage rate may actually go lower. It’s related to the math behind the ARM.

Conventional, adjustable-rate mortgages share a common life cycle:

  1. There’s a “starter period” in which the interest rate remains fixed
  2. There’s an initial adjustment period after the starter period called the “first adjustment”
  3. There’s a subsequent annual adjustment until the loan’s term expires — usually at Year 30.

The starter period will vary from 1 to 10 years, but at the point of first adjustment, conventional ARMs become the same. A homeowner’s new, adjusted mortgage rate is determined by the sum of some constant, and a variable. The constant is most often 2.25% and the variable is most often the 12-month LIBOR.

As a formula, the math looks like this:

(Adjusted Mortgage Rates) = (12-Month LIBOR) + (2.250 Percent)

LIBOR is an acronym standing for London Interbank Offered Rate. It’s the rate at which banks borrow money from each other and, lately, LIBOR has been low. As a result, adjusting mortgage rates have been low, too.

Last year, 5-year ARMs were adjusting to 6 percent or higher. Today, they’re adjusting to 3.375%.

Based on the math, it may be wise to just let your ARM adjust this year. Or, depending on how long you plan to stay in your home, consider a refinance to a new ARM.  Starter rates on today’s adjustable rate mortgages are exceptionally low in Tempe , as are the rates for fixed rate loans.

Either way, talk to your loan officer about making a plan. With mortgage rates as low as they’ve ever been in history, homeowners have some interesting options. Just don’t wait too long. LIBOR — and mortgage rates in general — are known to change quickly.

Filed Under: Adjustable Rate Mortgages Tagged With: , ,