Should you refinance your ARM (Adjustable Rate Mortgage) for a FRM (Fixed Rate Mortgage)?

Lately, everyone is eager to jump the uncertain ARM ship for the stability and sometimes lower costs of a FRM. But just because everybody else is doing it, doesn’t mean it’s right for you. Before signing up with the first of the bazillion of mortgage brokers that call you on any given night, here are a few factors to take into consideration. 1) Know your rate and know when it adjusts. Before you even say “hello” to a broker, make sure you’re aware of your current ARM rate. How will you know if you’re going to save money if you don’t even know what you’re paying now? Of course, a huge part of this is knowing about your current fully-indexed rate (FIR), and when it adjusts. Why is this important? Because it’s the best way of estimating how much, if any, your ARM rate will change in the next period. Basically, the next time your ARM is due to adjust, it will reset to the margin plus the current index value. (online tool?) (There are a few indexes that work a little differently, including the COFI, COSI and CODI) 2) Know the rate and terms on FRMs Finally, you can talk to those brokers. Find out all the details on the currently available FRMs, so you can make an informed comparison. But don’t sign up yet. Now that you have the information you need, you can make an intelligent decision. Just use these quick guidelines to help: Definitely refinance, and fast: If both the FIR rate and your ARM rate are higher than the FRM rate, then you can only win by refinancing quickly. Either refinance immediately, or plan to stay in your ARM for a long time: If the FIR rate is lower but your ARM rate is higher than the FRM rate, you have two choices. You can refinance now and immediately begin saving money on your high-priced ARM, or you can choose to wait until your ARM rate drops in the future, and hope to save money in the long-run over the FRM. Definitely refinance, but have patience: If the FIR rate is higher but your ARM rate is lower than the FRM rate, it means the time to refinance is just before the next ARM rate-adjustment period. Refinancing immediately would be a waste of money. Kiss those mortgage brokers goodbye: If both the FIR rate and your ARM rate are lower than the FRM rate, it makes no sense to refinance at all right now. Unless the index rate rises enough to put your new ARM above the FRM rate, just stay put and count your blessings.