Should I refinance my adjustable-rate mortgage now?
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Jamie Johnson is a Kansas City-based personal finance and credit expert whose work has been featured in Credit Karma, Insider, Bankrate, Rocket Mortgage, the U.S. Chamber of Commerce, Quicken Loans, and The Balance.
Updated October 16, 2024, 2:45 AM EDT
Adjustable-rate mortgages (ARMs) have been rising in popularity with mortgage borrowers over the past few years. ARMs are a good way to keep mortgage costs low, especially in the first few years of the loan.
Though ARMs may seem like a great deal, it’s actually a better option to refinance to a fixed-rate mortgage right now. With rates at an all-time low, now is the perfect time to lock in a fixed rate so you don’t have to worry about any sudden spikes.
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Why you should refinance an adjustable-rate mortgage now
Many people have hybrid ARMs, which are 30-year mortgages with an initial fixed low-interest rate for either five, seven or 10 years. After the initial period is up, the rate will adjust annually for the remainder of the loan term.
If you’re nearing the end of the initial term on your ARM, then now is an excellent time to refinance to a fixed-rate mortgage. By refinancing, you’re taking advantage of historically low interest rates and locking in that rate for a longer term.
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What are the current mortgage refinance rates?
Over the past month, mortgage rates have been slowly rising but refinance rates are holding steady at near-record lows. Depending on the term length you choose, here is what you can expect from refinancing rates:
- 30-year fixed-rate refinance: 2.875%
- 20-year fixed-rate refinance: 2.875%
- 15-year fixed-rate refinance: 2.250%
Benefits of refinancing a mortgage
The biggest reason to refinance to a fixed-rate mortgage is the stability it provides. With an ARM, your payments can fluctuate, making it harder to plan for expenses and manage your money. But when you refinance to a fixed-rate mortgage, the payments will stay consistent over the life of the loan.
And depending on your credit score and circumstances, you may be able to make other changes to the loan. For instance, you may be able to shorten your loan term or lower your monthly payments.
Many people opt for an ARM to take advantage of low rates, especially at the beginning of the mortgage. But right now, a standard fixed-rate mortgage is nearly equal to an ARM.
It’s impossible to determine when interest rates will go up but some industry experts predict that rates will rise in the next year. Refinancing will allow you to take advantage of low rates and save money on your monthly payments.
You should use an online mortgage refinance calculator, as it can help you determine your estimated monthly costs.
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How to get the best mortgage refinancing rate
When you refinance your mortgage, you’re taking out an entirely new loan. This means you’ll have to pay closing costs and other fees.
If you’re not careful, these costs can quickly add up and eliminate many of the cost-saving benefits you would have received by refinancing. So before settling on a lender, you want to know that refinancing is worth it financially.
To find the best mortgage refinancing rates, make sure you shop around and compare lenders. The best way to do this is by using a lending marketplace like Credible. With Credible, you can compare rates from multiple banks and lenders. And Credible does a soft credit inquiry so you can explore your mortgage refinance options without worrying about hurting your credit score.
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Next steps
There are benefits to taking out an ARM but now is a great time to refinance to a fixed-rate mortgage. By refinancing, you can lock in record low refi rates for the remainder of your loan.