Listening to the concerns about impending problems for adjustable rate mortgage holders, one might get the impression that anyone with an adjustable rate mortgage (ARM) is about to lose a limb. It is true that many people could lose their financial shirts: about 2 million homeowners are expected to face higher monthly payments when their adjustable rate mortgages reset over the next year, and some of them won’t be able to afford the increase. Still, many homeowners with ARMs will fare just fine. Regardless of which category you fall into, if you’re wrestling with a decision about your ARM, you need to be informed before you act. Here are seven good reasons to consider refinancing your ARM:
1. Your ARM is about to reset at a higher interest rate
If your introductory period is set to end within the next year, it may be time to rethink your mortgage.
2. You believe interest rates are going up long-term
ARMs make the most sense for people who are willing to bet there won’t be large interest rate spikes coming. But if you now think increases are likely for the foreseeable future, it makes sense to lock in at today’s low fixed rates for the next 15 to 30 years.
3. You want the stability of a fixed rate
Maybe you’ve recently retired and are on a fixed income, or maybe you’ve just been spooked by recent instability in the housing market. If it will help you sleep better at night, look into switching to a fixed rate.
4. You want to refinance to another ARM
Despite all the recent concerns, ARMs can still be valuable financial tools for many homeowners. There may well be another ARM out there that’s a better deal for you, especially if you only plan to live in your home for a few more years.
5. You’re staying put for a while
Perhaps you opted for an adjustable rate mortgage, thinking you’d be moving before it was time for your rate to reset. Now, it looks like you’ll be living there longer. Since your circumstances have changed, it’s time to re-do your mortgage math and see if there’s a better deal out there for you, perhaps in the form of a fixed-rate loan.
6. You’ve got higher-interest rate debt to consolidate
Refinancing your ARM can make sense if you’ve got other debt that carries a higher interest rate, such as credit card debt. Adding that debt to your mortgage means you’ll likely pay a lower interest rate on it, and you may be allowed to deduct the interest from your taxable income. Just be sure to avoid racking up more high interest rate debt after you consolidate.
7. You want to cash out some of your home equity
Perhaps you need money to pay for home improvements, education or starting your own business. Just be careful: having too little equity in their home is what has gotten some homeowners into trouble.
Before making any big mortgage decisions, arm yourself with the best information available. Consult an expert on your individual situation.