Many experts recommend refinancing from an
ARM to a fixed-rate mortgage if rates drop and you’re planning
to stay in your home for more than a few years. That’s because
ARMs often offer low interest rates
at the start of the
term,
but expose you to the risk of higher rates down the road. By refinancing
to a fixed-rate mortgage, you can take advantage of regular monthly
payments for the remainder of the loan’s term.
Some ARMs have a built-in conversion feature
that lets you convert to a fixed-rate mortgage for the remainder
of the term. You may have to pay a fee or you may only be able
to do the conversion at certain payment periods, but check it
out. Converting may be cheaper and easier than refinancing.
Changing terms
Homeowners may choose to refinance from a
30-year mortgage to a 20- or 15-year mortgage to build
equity
and pay off their mortgage faster. Reducing the term of the mortgage
means higher monthly payments, but lower finance charges. And
you’ll be able to use your equity sooner to meet other financial
goals.
