Is It Time to Refinance Your ARM to a Fixed-Rate Mortgage?


Adjustable-rate mortgages have been a favorite funding choice, especially for first-time homebuyers, but the prospect of rising interest rates is causing many borrowers to rethink their home loan strategy.

“Honestly, the last 10 years have been awesome for people on ARMs,” Steve Garrett, a mortgage banker in Kansas City, Missouri, with Armed Forces Bank, tells NerdWallet. “A lot of people have ridden the ARM wave, if you will, for quite a while, and they’ve done well on it. But they know it’s the end of the ride, and it’s time to get serious and get into a fixed rate.”

However, making the switch — refinancing from an ARM to a fixed-rate mortgage — isn’t for everyone. It’s not just about interest rates; you’ll also need to consider your personal circumstances.

Ask lots of questions when considering a fixed-rate refinance

“Every situation is different,” says John Schleck, senior vice president at Bank of America. “Get professional input; sit down with a loan officer. Go over your entire situation, not just your mortgage situation but really look at all of your finances. When are you thinking about retiring? How long are you going to be in your house? There’s so many questions I think you’ve really got to look at, not just a simple answer to, ‘I’m in an adjustable rate and fixed rates look really good, let me just jump over there.’ ”

Garrett at Armed Forces Bank suggests some additional questions to ask yourself: Is this your forever home, or are you just a few years from an upgrade or a downsize? If you plan to stay in your home for a handful of years or less, the ARM may continue to serve you well, if you can absorb potential interest rate increases.

Your ultimate decision on whether to convert from an ARM to a fixed-rate mortgage will depend on your cash flow needs and your tolerance for interest rate risk, he says.

Look for your ARM reset notice

Garrett says homeowners with adjustable-rate mortgages should be on the lookout for annual reset notices: written notification to borrowers of the date and amount of any change in their interest rate.

“Normally, it’s three to six months before the rate is due to adjust,” Garrett says. “For the last, I would say, 10 years, people with ARMs have benefited greatly because rates across the board on everything have been so stinking low. And so you have people who bought a house six, seven years ago with an adjustable rate and year after year, their rate has actually continually gone down — and their payment has gone down.”

But he says that trend is set to reverse if begin to creep higher.


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