Time to refinance your mortgage?

Got an adjustable rate mortgage and feeling stressed about where interest rates are headed? You’re not alone. It’s estimated that about $1.5 trillion worth of adjustable rate mortgages (ARMs) are scheduled to reset before the end of 2007. And, while mortgage experts predict interest rates are going to stay relatively flat this year, no one knows for certain where they’re headed in the years to come.

In the past, ARM rates have significantly undercut fixed-loan rates. But the gap has narrowed. In recent weeks, average one-year ARMs have been at 5.51 percent and five-year ARMs at 6.04 percent, compared to 6.32 percent for a 30-year fixed-rate loan. If you opted for an ARM several years ago, when the spread was much wider, you probably saved yourself hundreds of dollars a year in interest rate payments. But that’s not necessarily true today.

The fact that interest rates have recently inched up slightly is also causing concern. Homeowners don’t want to face payment shock if their adjustable rate mortgages reset at a much higher rate. And with rates still at near historic lows, and long- and short-term rates running neck-and-neck, lenders report what they’re calling a “mini refinance boom.”

Most of the activity is coming from a surge in applications from those looking to refinance their existing ARMs with the security of a fixed-rate loan. Jim Svinth, chief economist at LendingTree.com, says, “We’re seeing a lot of people who are saying they’d rather pay an extra half a percent to avoid the risk of a reset on an adjustable rate mortgage in the future.”

And rates don’t have to shoot up to double-digit levels to have a significant impact. Say they increase by just 2 percent to the 8.32 percent 30-year fixed-rate national average they were at in January 2000. On a $200,000 mortgage, your current $1,272.84 monthly payment would increase to $1,512.39, an additional $271.84 a month or $3,262.08 a year.

That’s a considerable chunk of change -- certainly something to think about.


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