ARM Refinance: Should You Replace Your Adjustable-Rate Mortgage (ARM)?
If you currently have an adjustable-rate mortgage (ARM), you may be wondering if it’s possible to do an ARM refinance. Luckily, you can refinance an ARM loan. Here’s what you need to know about the refinancing process. Plus, we’ll also offer some guidance on how to determine if refinancing is the right choice for you.
- You can refinance an ARM loan just like any other mortgage loan.
- Refinancing from an ARM loan to a fixed-rate option can help you achieve more predictable payments. Refinancing to another ARM can help you secure a lower interest rate.
- You’ll need to meet certain lender requirements to qualify for a refinance, but don’t forget to shop around for the best rate.
Can you refinance an ARM loan?
Yes, you can refinance an adjustable-rate mortgage — similar to how it’s possible to refinance any other type of mortgage loan. When you refinance, you simply take out a new loan and use the funds to pay off your existing loan. Once the transaction is complete, you’ll continue making payments on your new loan until it’s paid off in full or you decide to refinance again.
You can either refinance into a fixed-rate mortgage or another ARM loan. Many people choose to refinance into a fixed-rate option because their payments will stay the same with this type of home loan and that can make it easier to budget around.
Other homeowners choose to refinance into another ARM loan because their mortgage interest rate will typically be lower than with a fixed-rate option. However, it’s smart to remember that your interest rate isn’t the only cost of refinancing. You’ll also have closing costs to consider.
How to refinance an adjustable-rate mortgage
The process for refinancing an ARM loan is the same as refinancing a fixed-rate mortgage. Follow these five steps to get started:
- Shop around: You don’t have to refinance your loan with your current lender. Take the time to gather quotes from multiple lenders and compare bids. Shopping around for a mortgage could save you tens of thousands of dollars over the life of the loan.
- Apply for the loan: Once you’ve chosen your preferred lender, you’ll gather all your financial paperwork and apply for the loan. Lenders usually offer a refinance application, which can be more streamlined compared with the paperwork for a home purchase loan.
- Wait for the appraisal: Most mortgage lenders require a home appraisal when refinancing, so they know that your home is worth at least as much as the amount you are borrowing. Receiving the results of an appraisal is a key part of loan approval.
- Go through underwriting: During the underwriting process, the lender’s team will verify your finances to ensure you qualify for the loan.
- Close on the loan: Once you receive final approval, your lender will set a date for you to sign all the paperwork and pay your closing costs. After that’s done, you will have officially refinanced your home loan.
Not sure where to start your search? Check out our list of the best mortgage lenders in 2025.
Lender requirements for refinancing an ARM
Now that you know how to refinance an adjustable-rate mortgage, the next step is to learn whether you meet the minimum mortgage requirements. The exact requirements will vary by lender. However, here are a few common benchmarks to give you a sense of what you’ll need to qualify for a refinance.
- Home equity: Most lenders won’t allow you to refinance unless you have at least 20% home equity in the property, though some lenders may require less than that threshold.
- Seasoning requirements: While there is no set limit to the number of times you can refinance a mortgage, most of the time, you must hold your current mortgage for at least six months before you’ll be eligible to refinance again.
- Credit score: Most conventional lenders require you to have a credit score of at least 620, though some government refinance programs allow scores as low as 500.
- Debt-to-income (DTI) ratio: Ideally, your DTI ratio will be less than 45%.
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How much does it cost to do an ARM refinance?
Even though refinancing isn’t free, you’ll typically face fewer closing costs than when you first purchased your home. Still, if you decide to refinance your ARM loan, you’ll need to budget for a number of costs, including:
- Home appraisal fee ($225 to $700): In most cases, you’ll need an appraisal for your refinance. The appraisal tells lenders how much your home is worth, so they can decide how much they’re willing to lend you.
- Credit report fee ($50 to $80 per applicant): Lenders need to know your credit score to approve you for the loan, but it costs money to gather this information, so they will often pass the cost along to you in the form of credit report fees.
- Loan origination fees (0.5% to 1.0% of the loan amount): Origination fees are often charged to help the lender cover the administrative costs of opening a new loan for you.
- Title search and insurance fee ($400 to $900): Your lender will likely require you to get a title insurance policy from your new lender when you refinance your mortgage.
- Recording fees ($25 to $200): Your new mortgage loan will need to be recorded with state and local government agencies so that there’s a record of the transaction. Each agency will impose its own fees.
While the list above highlights some of the most common refinance costs, remember that costs can vary by lender and loan program. You can expect to pay between 2% and 6% of the loan amount in total refinance closing costs.
Feel free to check out our complete guide to the cost of refinancing for a more in-depth look at what to expect.
Pros and cons of refinancing an ARM
Pros
- You’ll save on interest: Many people decide to refinance their ARM loan before their initial rate expires so they can save on interest charges if market rates have risen since they first took out their home loan.
- You may be able to get rid of private mortgage insurance (PMI): If you have more than 20% equity in your home, which is a requirement for many refinances, you may be able to end your PMI requirement, as well.
- You may be able to borrow more money than you owe on the home: With a cash-out refinance, you can borrow more money than you currently owe and use the excess cash to cover major life expenses, like home improvements or education costs.
Cons
- You’ll pay closing costs: You’ll have to pay closing costs in order to take out your new refinance loan.
- You’ll take longer to pay off your mortgage: When you refinance a loan, you take on a new maturity term. Depending on which loan term you choose, it could take 10, 15, or even 30 more years to pay off your new mortgage loan.
- You may negatively impact your credit score: Refinancing your mortgage will likely require a hard inquiry on your credit report, which can cause your score to drop temporarily.
Expert insights on refinancing an ARM to a fixed-rate mortgage
Refinancing from an ARM to a fixed-rate mortgage can be wise if you’re looking for more stability and predictability in your loan. While an ARM can bring you a lower initial rate, the prospect of future increases can be troubling and hard to budget for. Locking in a fixed-rate mortgage means that you know what’s ahead.
Should you refinance an ARM loan?
Ultimately, the decision of whether to do an ARM refinance is a personal one. However, here are a few ways to determine if it makes sense for you:
Refinancing may make sense if:
- You want more stability around your payments: Fixed-rate mortgage payments stay the same over the life of the loan, so they are easier to budget around.
- Your rate adjustment will cause a financial burden: If you’re nearing the end of your initial rate period on your ARM and your rate adjustment will make your payment higher than expected, it likely makes sense to compare current refinance rates.
- You’re planning on staying in your home long enough to break even on the cost of refinancing: Since refinancing comes with an upfront cost, you won’t see true savings from it right away. You’ll need to calculate your break-even point to determine how long you should plan to stay in the home to recoup savings from your investment.
Refinancing may not make sense if:
- You won’t save enough on interest: Experts recommend refinancing only if you can save half a point to a full point of interest. Otherwise, it may take you too long to break even on the upfront cost.
- You’ve paid down the majority of your loan: If you’ve paid down a lot of your loan, the majority of your payments are likely being applied to your principal loan balance instead of interest. You’ll lose that momentum if you decide to refinance.
- You’re planning on moving soon: If you plan to move in the near future, you likely won’t be in the home long enough to recoup the upfront cost of refinancing and benefit from the savings.
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Frequently asked questions
The main downside of getting an ARM loan is that eventually your payment will adjust to market rates. If rates have gone up significantly since you first took out your home loan, this may result in a much larger housing payment than you’ve had to date.
Unless your mortgage has a prepayment penalty, there should not be a penalty for refinancing your ARM loan. Read your loan estimate or contact your lender to find out whether your loan has this clause attached.
According to Matt Shulz, Chief Consumer Finance Analyst at LendingTree, an ARM loan can be beneficial if you aren’t planning on staying in your home very long. Specifically, it can be a smart option if you plan to move before your initial interest rate resets.
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