Should I refinance my ARM to a fixed rate - There are benefits and negatives to both a fixed rate and an ARM mortgage, but for the borrower who is thinking about refinancing their ARM into a fixed rate, there are many things to consider. By Refinancing your ARM to a fixed-rate mortgage you will avoid the payment increase when your ARM interest rate begins to adjust. You will also lock into a more stable payment for the term of your mortgage.

Rates are rising rapidly for short term, adjustable rate mortgages. If your loan is adjusting, the payments could increase by up to 50% or more. You may be able to substantially reduce your adjusted payment by locking in a fixed rate today. Some Fixed Rate mortgages even have payment options as low as 1.95%

If you are currently in a sub-prime 2/28 ARM you may want to consider refinancing to a fixed rate. If property values are starting to drop in your area It is even more critical that you refinance out of your ARM in the near future.

Many people take adjustable rate mortgages because credit challenges prevented them from having a low fixed rate. If you have made all of your mortgage payments on time and your credit score has increased you may be able to refinance into a Fixed Rate Mortgage without increasing your payments.

If affordability is a determining factor in deciding your mortgage structure, ask your loan officer or mortgage broker if structuring your loan as an Adjustable Rate will give you more flexibility.

When deciding to refinance your adjustable rate mortgage (ARM) into a fixed rate mortgage, you first need to decide how long you think you will be in your home. If you are in the second year of a 5 year ARM, and only see yourself in the house for another 2-3 years, then you may want to wait until it is absolutely necessary to make the change. Your mortgage broker can advise you as to what the market may do, but they will not know what is in store for years to come. Concurrently they will also not know the number of years you will be in the home, along with any changes in your life that may require you to move.

If you are in a situation in which you MUST refinance, pay close attention to what is going on in the market. Make sure you are dealing with a savvy and honest loan officer or Mortgage Broker. Sometimes the yield curve becomes inverted, and you can actually refinance into a 30 year fixed mortgage, at a lower or equal rate than a 3 or 5 year ARM!

You need to find what your break even point is for your current loan. Have you already broken even? If not how much more will it cost you to continue in your current loan? Have an honest discussion with a broker to decide what the best course of action is.

In an economic climate where short term rates and long term rates are about the same, it may be better to refinance adjustable rate mortgages into fixed rate loans. Home buyers are willing to share the risks of an adjustable rate mortgage when the adjustable rate is significantly lower than fixed rate mortgages. If such advantage no longer exists, fixed rate mortgage is often a preferred choice.

How Can an ARM Loan Benefit Me? - Often, mortgage borrowers want to avoid Adjustable Rate Mortgages (ARMs) at all cost. Most fail to realize how an ARM loan may actually benefit them over a traditional 15 or 30 year fixed loan.

The ARM will offer you a lower rate and if you only plan to live in the home 3-7 years then an ARM will benefit you with its lower payments.

An ARM loan can help save you money from your monthly mortgage payment. This money saved can be used to pay down other debts, apply more money towards the principal of your loan, and to start investing money towards your retirement. There are all kinds of ARM loans available. Some common examples are 3/1 ARMs, 5/1 ARMs, 7/1 ARMs, 3/1 Interest Only ARMs, 5/1 Interest Only ARMs, and Pay Option ARM's. All of these have their own benefits and your mortgage broker should be able to help decide which one might be right for your unique situation.

Many times the 2/28 ARM or the 3/27 ARMs are the only way a person with low credit scores can purchase a home. They are basically used as starter loans to get you in the house. Once you are in the house, then it may be beneficial to you to refinance into something more long term, if you plan on being there for a while.

Arm loans can be beneficial to you for lowering your monthly payment over a shorter period of time allowing you to purchase or refinance a property and limit your monthly expenses. If you are anticipating a higher income at a later date, an arm loan may be your best option for minimizing your expense while maximising your buying power at your current income level.

Your mortgage broker should give you options for fixed rates or arms. Many sub prime borrowers benefit from the arm rates due to lower payments while they restore and rebuilt their credit rating.

An often overlooked benefit of an ARM loan is that it could possibly save you from the need to refinance. Here's what I mean. In the period from 2001 to 2004 when rates were declining, many borrowers with fixed rates spent thousands of dollars to refinance their loans, sometimes more than once. They did this in order to keep ratcheting their interest rate down, again incurring thousands or even tens of thousands in refinancing costs in the process. Those with ARMs saw their interest rates go down along with the decrease in market rates - without having to pay to refinance! So yes, with an ARM you are vunerable to increased rates when the market rises but you also benefit with lowered rates when the market moves downward.

Many investors choose adjustable rate mortgages. The lower initial interest rate period will often provide enough time for a house to be rennovated and resold.

Many borrowers who choose ARM loans do so for the low teaser or start rate offered during the initial fixed period of the loan. ARM mortgages are generally refinanced before the end of this period because when the fixed period on an ARM expires, the rate and payment of the adjustable rate mortgage can rise dramatically.

Choosing between a fixed rate loan and aa adjustable rate loan is one of the most perplexing choices anyone can make. With a fixed rate loan, you know exactly where you stand today, and where you’ll stand any number of years from today. The fixed rate is easy to understand, and it holds no surprises for you. The adjustable rate loan may look more attractive because it will generally have a lower starting interest rate. And, of course, there’s always the hope that interest rates may go down. In deed, in recent years, the have gone down.

(ARM) Adjustable Rate Mortgage - An Adjustable Rate Mortgage is a loan in which the interest rate varies at predetermined intervals in step with the movements of an agreed upon external index rate for some portion of the life of the loan.

A mortgage in which the interest periodically "adjusts", according to various fluctuations in an index. All ARMs are tied to indexes. Common indexes are T-Bill, MTA, COFI, COSI, CODI, & LIBOR.

It will be in your best interest to refinance the ARM before it begins to adjust. Although there areinterest rate caps on the amount of the first rate adjustment, once the ARM begins to adjust your payent will more then likely increase.

Adjustable rate mortgages often have lower initial interest rates and payments.

Today's Adjustables lock in lower rates for longer than ever before, so you can fix that low initial interest rate for 5 years or more.

For customers who plan on living in their home for less than 5 to 7 years, adjustable rate mortgages, particularly fixed/adjustable hybrids are often an excellent option.

Adjustable Rate Mortgages or ARM mortgages are an excellent choice for your first home purchase, for growing families, and for building up credit.

How to choose an ARM Loan - You will usually have 4 choices of Adjustable Rate Mortgages(ARMs) offered: 3/1, 5/1, 7/1 and 10/1. The numbers used to describe the ARMs refer to the period for which the initial rate holds, and the rate adjustment period after the initial rate period ends. On a 3/1, for example, the initial percent rate holds for 3 years, then the rate adjusts annually. All these ARMs have annual rate adjustments after the end of the initial rate period.

There are also two critical elements to consider when evaluating an ARM: the index and the margin. The interest rate you will pay at the end of the fixed period will be determined by the index at that time, which may adjust periodically, and the margin, which will remain fixed for as long as you remain in that loan.

Another critical factor to consider when choosing an ARM loan is, what are the annual caps and the lifetime caps of the ARM loan. In other words, is there a maximum rate that my loan can go up to or can it just adjust as high as possible each adjustment period and over the life of the loan. Most ARM's have an annual cap of 1-2%. This means that your rate cannot increase or decrease by more than 1 or 2 percent at any given adjustment period. Most ARM's have a lifetime cap of 6%. This means your rate cannot increase or decrease by more than 6% over the life of the loan.
Example:

3/1 ARM, start rate is 4.5% fixed for 3 years, there is an annual cap of 1% and a lifetime cap of 6%
Over the life of the loan your rate can never be higher than 10.5%, and each year your rate could never adjust more than a 1% increment. So at the time of your first adjustment your rate could not be higher than 5.5% or lower than 3.5%.

Typically the interest rate on an ARM is lower than the interest rate on a fixed rate mortgage. ARMs are a smart choice over a fixed rate if you do not plan on keeping the property for a long period of time.

Watch out! Sometimes the relationship between ARM loans and Fixed rate Mortgages(FRM's) can become inverted! This means a 5 year ARM (or a 3,7, or 10) could actually have a higher rate than a 30 Yr. Fixed.

When choosing what ARM product is best for you make sure that you do not have a pre-payment penalty that is longer than the fixed period of your loan. You do not want to be in a 2 year ARM and have a pre-payment penalty that lasts for 3 years.

Real estate investors and buyers who value managing and maximizing their free cash flow may benefit fromthe pay option ARM adjustable rate mortgage program, which allows homeowners the option of deciding how much to pay on their mortgage each month.

When choosing among different Adjustable Rate Mortgages, it is as important to pay attention to the underlying indices as the margins. Some indices are more volatile than others and adjust more frequently.

One key thing when thinking of choosing an ARM loan would be to do some research on the various popular indices such as the LIBOR, MTA, COFI and COSI. Make sure you pick an index that is consistent with you plan for the mortgage. Be careful of lower margins, they are usually tied to a more volatile index. A good mortgage broker can help advise you in this regard.

You should discuss all the types of ARM mortgages being offered. Discuss the indexes and the margins. Make sure your comfortable with the ARM you choose.

If you do have an ARM with a pre pay penalty ask if it is a hard or soft pre pay. A soft pre pay will allow you to sell the house with no penalty. A hard pre pay requires you to pay the penalty if you sell or refinance the mortgage before the pre pay expires. Pre pay panalties will vary in the amount required from 60 days interest to 6 months interest.

Agressive monthly adjustables may be available for even lower monthly payment. These can make sense for short term ownership or investment properties.

Every ARM loan is tied to a financial market index, such as CDs, T-bills, COFI or LIBOR rates. Your rate is determined by adding an additional percentage known as a margin) to that index's rate. When the index rises or falls, your interest rate rises or falls with it. Make sure you know your ceiling interest rate or lifetime cap. This is a guarantee that your interest rate will never exceed a designated percentage. For instance, if your introductory interest rate was 5% and you have a lifetime rate cap of 6%(Meaning that your interest rate can never increase more than 6% during the life of the loan) then your lifetime cap would be 11%. Your interest rate could never exceed 11%, ever.

What Are the Benefits of an ARM?
A lower initial interest rate (usually 2% to 3% lower than fixed-rate mortgages)makes qualifying easier and the payments more manageable at first.
You may qualify for a larger loan than you would with a fixed-rate mortgage.
If you're only planning to stay in the home for a short time, the interest rate is likely to stay lower than that of a fixed-rate mortgage.
If you expect regular pay increases that would cover the increase in your interest rate, or you believe interest rates will fall, an ARM might be the wiser choice.

If you know that you are only going to be in the home for a short period of time you should try to get a loan with a fixed term that is similar to that time period. For example, if you are planning on staying in the home 3 years, get a 3 year ARM. Most people don't stay in a home for 30 years, why get a loan that is fixed for that length of time?

Benefits of an ARM - An ARM allows you to receive more money at a lower interest rate than a fixed rate loan. If you are planning to move within a few years, you can save money and avoid rising payments.

Adjustable Rate Mortgages start out with a lower payment than fixed rate mortgages, with the possibility of adjusting higher in the future if interest rates rise. This can be beneficial if you want the lower payment now, but expect your salary to increase in the future.

The fixed interest rate portion of an ARM can be as short as the first month of the loan, or be fixed all the way up to the first 10 years of the loan. Depending on how long you are going to be in the property you can choose an ARM . Each ARM also has different guidelines regarding how much the the interest rate can fluxuate at each adjustment, and what the lifetime maximum and minimum interest rates are for the loan. If you think that you are likely to see the adjustment period you should look at these numbers since they will control how quickly your payments can go up or down.

Many investors choose adjustable rate mortgages on houses they will be rennovating for resale. The lower start rate means a lower monthly payment and increased cash flow. Many investors plan to resale the house in a short period of time so rate adjustment isn't an issue.

Adjustable ARM mortgages can be an excellent choice when short term interest rates, such as the Fed Funds Rate, are low and 10 year bond and treasury yields are high. However, under certain market conditions such as those we have experienced through the end of 2006 and well into 2007, the difference in payments between Adjustable ARM and Fixed Rate mortgages diminishes, providing borrowers in ARM mortgages with a strong reason to refinance and lock in a fixed rate at a low payment.

If you only plan on being in your home for a short period of time, then an ARM can be advantageous to you. If you know you will only be in the home for 3-5 years, then you would be better off taking a 5 year ARM. The lower interest rate that it offers will save you hundreds of dollars while in the home.

If you would like to lower your monthly mortgage payment to be able to apply more money in other places of your life an ARM loan may be right for you. An ARM loan should provide you a much better interest rate than a fixed rate loan, therefore giving you a lower payment each month. This in turn will free up some money each month in order for you to use the money where it is needed more at this time.

When considering an ARM loan you should take into consideration your lifestyle and future goals. ARM loans can benefit you with the reduced interest payments because of a lower interest rate which will allow you to invest more money into principal reduction and other valuable investments.

Fixed Rate vs. ARM - There are many different options available when shopping for a mortgage, but one of the most basic choices potential borrowers face is the choice between a fixed rate or an adjustable rate mortgage.

There are benefits and drawbacks to each, and you should consider these when shopping for a mortgage.

A fixed rate mortgage has the advantage that the interest rate is fixed for the life of the loan. Your payments will remain stable, regardless of changes in the real estate or interest rate markets. Over the life of your loan, the interest rate market will fluctuate, and at some point, your interest rate will probably be below the current market. The lender assumes the risk of such market fluctuations in making the fixed rate mortgage for you, and in exchange, the fixed rate mortgage typically carries a higher rate than a comparable adjustable rate mortgage.

An adjustable rate mortgage (ARM) offers a lower initial interest rate than its fixed rate counterpart. The reason for this is that making a mortgage involves a large sum of money being lent over a long period of time, and therefore carries some level of risk for the lender. If you take on an adjustable rate mortgage, you are assuming some of that risk by allowing your interest rate to change with the market. The lenders profit margin is protected over the life of the loan, and therefore they can offer you a more attractive interest rate.

Fixed Rate Mortgages are often thought of as having high monthly payments and little to no flexibility compared to their ARM Adjustable Rate Mortgage brethren. In recent years, many people have voted with their feet and refinanced into record numbers of exotic mortgages, such Option ARM mortgages, because these adjustable rate mortgages allowed them to defer interest and pocket excess cash flow. However, in today's rising interest rate environment, many borrowers who are in the original, 1 month MTA or LIBOR variety of these adjustable rate mortgages are seeing dramatic increases in their underlying interest rates. When an option ARM loan's rate increases (the actual rate, not the minimum payment rate), the negative amortization caused when you defer interest each month increases, and your loan will "recast" or reset to a full payment, much more quickly. At today's rates, the typical option ARM loan taken out in 2004 or 2005 will recast in the next several months, often with no real notice to you. Don't get caught with your pants down on this, the payment can more than triple in some cases. Before your Option ARM loan recasts, consider locking in a low fixed rate loan with a cash flow option, which will minimize the negative effects of the interest you choose to defer and prevent any nasty surprises in the future.

Most homeowner sell or refinance their homes within 5 years, therefore obtaining a fixed rate may not always be the best option. When you are looking to buy a new home or refinance your existing mortgage sit down with your mortgage professional to find out all of the advantages and disadvantages to both a fixed rate home loan and an adjustable rate home loan for your individual situation. Adjustable rate mortgages, also referred to as ARM's, can be highly advantageous when used in the right situations. Remember to, that with an adjustable rate mortgage your rate can also go down depending on the market conditions at the time of the adjustment periods.

Both fixed rate and ARM loans can be "interest only". Typically, the interest-only period on a 30-year fixed rate loan lasts 5 years. On adjustable-rate mortgages, the interest-only period typically coincides with the fixed-rate period (if the loan is a 2-year ARM, the interest-only period is usually 2 years as well).

Mortgage loans with long fixed rate periods usually have higher interest rates. However, in certain interest climates, the short term rate is at the same level as long term rates. In such economic conditions, there is little to no difference in interest rates between an Adjustable Rate Mortgage (ARM) and a Fixed Rate Mortgage )FRM).

Is an ARM the right loan for me? - Deciding if an Adjustable Rate Mortgage (ARM) is right for you will depend on your personal financial situation. Once your financial goals are decided then the terms of the ARM will also come into play with your decision.

One of the most important things to think about when considering an ARM on your property revolves around how long you plan to keep the home. It's common now for homeowners to not plan to keep the home for more than 3-5 years. If this applies to you, taking a 3-year or 5-year ARM can significantly lower the interest rate on your home, saving you money each month over the typical 30-year fixed program.

Keep in mind that you will have to pay closing costs if you'd like to refinance that ARM into a fixed rate mortgage. If you originally bought the home with little or no money down, you may not have enough equity in your home to include the closing costs when it comes time to refinance.

It is important to compare the rates on the different types of ARM's regardless of how long you plan to be in the home. For example even if you are planning to move in 3 years, you may be able to get a better rate on a 5 year ARM than a 3 year ARM.

The advantage of an Adjustable Rate Mortgage (ARM) is that in most cases it offers a lower interest rate than its Fixed Rate counterpart. However, in some economic climates where the shorter interest rates are not lower than long term rates, such advantage is wiped out, and getting an ARM actually offers no benefits.

How tolerant are you to risk? Fixed rate mortgages offer security because the payment does not adjust, but this peace of mind comes at a cost: fixed rate mortgages often carry a higher interest rate than an adjustable rate mortgage. If you are confident that you know how long you will be in your home, or if you like the idea of increased cash flow due to a lower mortgage interest rate, be sure to ask your mortgage broker if an adjustable rate mortgage makes sense for you.