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Your Adjustable-Rate Mortgage: Is it Time to Refinance to a Fixed Rate?

Do you currently have an adjustable-rate mortgage? Did you plan to only be in your home for a short time? Maybe you were in a different financial situation when you chose your loan type? Adjustable-rate mortgages (ARMs) can be a great way to get a lower interest rate on your home loan for a period. However, when interest rates go up, like they have in recent years, your monthly payments could be impacted significantly. If you're concerned about rising mortgage interest rates, you may want to consider switching to a fixed-rate mortgage.

Can I Change from an ARM to a Fixed-Rate Loan?

Yes, you can.  One of the best ways to secure your finances and adapt to the rising cost of living is to stabilize your monthly payment by refinancing into a fixed-rate mortgage. 

Calculate a new monthly payment with our mortgage refinance calculator.

Why Choose a Fixed Rate?

With a fixed-rate mortgage, the interest rate remains constant throughout the life of the loan. It is possible your new interest rate could be slightly higher, but you have less risk in the long run.

  • Your payment will not fluctuate over time
  • Your interest rate will not adjust
  • Your budget will become easier to manage
  • Planning for the future is simplified with a predictable mortgage rate and payment

Get my loan options for a fixed-rate mortgage.

Here are a few situations where it may make sense to refinance your ARM:

  1. You want more security. Even if interest rates are increasing, the long-term future of the market is unpredictable. If you'd rather have the predictability of a fixed monthly payment instead of the potential for a lower payment in the future, refinancing can give you that peace of mind.
  2. Your financial goals have change.  Maybe you’re considering a cash-out refinance to consolidate debt, pay for home renovations or achieve other financial goals, switching to a fixed interest rate at the same time allows you to accomplish two goals at once.
  3. You have a good credit score. If your credit score is as good or better than it was when you first took out the loan, you'll have a better chance of getting a comparable (or even lower) interest rate to what you're paying right now. In an environment with rising interest rates and little probability of getting a comparable or lower interest rate, it can still help to maximize your savings on the new loan.
  4. You plan to stay in the home for a long time. If your fixed period is ending and you only plan to be in the home for another year or two, the closing costs on a refinance may offset the potential increase in your monthly payment if your rate adjusts upward. However, if you don’t plan to move in the next few years, it may be worth it to lock in a fixed interest rate, especially if current and future economic conditions appear uncertain.
  5. You can afford the closing costs. It's generally better to pay closing costs out of pocket than to roll them into the new loan. If you can afford to and you plan on staying in the home for several years, it may be worth it.

Types of Fixed-Rate Mortgage Loans:

Mortgages come in many different types, each with its own advantages and disadvantages. The best type of mortgage for you will depend on your individual circumstances and financial goals.

  • A Conventional Loan is a mortgage that is not backed by a government agency. This means that the lender is taking on more risk, so they typically require borrowers to have a higher credit score and down payment than for government-backed loans. Conventional loans are the most common type of mortgage in the United States.

  • An FHA fixed-rate mortgage is backed by the Federal Housing Administration (FHA). FHA loans have lower down payment requirements than conventional mortgages, making them a good option for borrowers with limited savings.

  • A VA fixed-rate mortgage is guaranteed by the Department of Veterans Affairs (VA). VA loans have no down payment requirement, making them a good option for veterans and active-duty military members.

Learn more about various loan options.

Along with loan type, you will need to determine what new loan term will best fit your needs.

30-year fixed-rate mortgage: This is the most common type of fixed-rate mortgage. The loan term is 30 years, and the interest rate is fixed for the entire term. This type of loan typically has lower monthly payments than a 15-year fixed-rate mortgage, but you will pay more interest over the life of the loan.

20-year fixed-rate mortgage: The loan term is 20 years, and the interest rates is fixed for the entire term. This loan typically has slightly higher payments than the 30-year fixed rate, but you pay less interest.

15-year fixed-rate mortgage: This type of loan has the shortest term of the three. The interest rate is fixed for the entire term, and your monthly payments will be higher than a 30-year or 20-year fixed-rate mortgage. However, you will pay less interest over the life of the loan and own your home outright earlier than with a 20- or 30-year term.

If you are looking for a low monthly payment, a 30-year fixed-rate mortgage may be a good option. If you are looking to pay off your mortgage sooner and save money on interest, a 15-year fixed-rate mortgage may be a better choice. It is important to compare loan types and terms with a loan officer before you make your decision.
If you are interested in learning more about your refinance options, call 800-451-1895 to speak to a PHH licensed loan officer or Apply Now.

By refinancing your existing loan, your total finance charge may be higher over the life of the loan. 


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