Quicken Loans
4 Reasons to Refinance Your Adjustable Rate Mortgage Mar 30, 2007, 1:46 pm PDT
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How do you know whether you should refinance out of your adjustable rate mortgage (ARM)? Before you decide, it should be clear what your purpose for refinancing is so that you can be sure your mortgage is still meeting your financial needs.
There are several reasons people need to refinance their adjustable rate mortgage:
Lowering your interest rate and monthly payment
Consolidating to eliminate high-interest debt
Switching from an adjustable to a fixed interest rate
Getting cash out of your home equity
1. Lowering Your Rate and Payment
Many people refinance their ARM to lower their interest rate. It may be that you got your ARM at a higher rate than what is currently available. If you refinanced to a lower interest rate, you would subsequently be lowering your monthly mortgage payment and possibly saving yourself some money.
2. Consolidating Debt
Consolidating high-interest credit card debt is another good reason to refinance your ARM. If you have a lot of credit card debt that you want to get rid of, it's a smart idea to use your mortgage to do it-the interest on your credit cards is most likely higher than the interest rate you could get on a mortgage. Plus, mortgage interest is tax-deductible* whereas credit card interest is not. That can be a great advantage and could save you more money.
3. Getting a Fixed Rate Mortgage
When you consider refinancing your ARM, you have to consider the current mortgage environment. Are rates going up or down? Right now, short-term rates have remained at a constant level. But that could change at any time.
You also have to know whether the rate on your ARM is about to adjust. If it is, it could go up. Or you may have been in a situation where you needed a short-term mortgage, but now are ready to move to a long-term mortgage.
If you're averse to your rate (and payment) changing, you may want to move from an ARM to a fixed-rate mortgage. A fixed-rate mortgage will guarantee that your rate and payment won't fluctuate for up to 30 years.
4. Getting Cash Out
Refinancing can be more than just getting a fixed rate or lowering your payment. Getting cash from your home equity is another big reason to refinance. You may need to make some improvements on your home like adding a bathroom or updating your kitchen. Or you may need money to start the business of your dreams.
There are many reasons you might refinance out of your adjustable rate mortgage. The best thing to do is to speak to an experienced home loan expert. Ask a lot of questions so that they can find the right mortgage that fits your needs.
*As always, please consult your tax advisor.
This article is reprinted by permission from Quicken Loans © 2007 Quicken Loans Inc. All rights reserved.