How to Refinance ARM to Fixed Rate Mortgages
ARMs, or Adjustable Rate Mortgages, are home loans that have variable interest rates. These rates are normally controlled by a margin (fixed number) and an index (a fluctuating market rate, like LIBOR, London InterBank Offered Rate, or Prime Rate). An ARM loan can adjust dramatically, depending on the terms, so refinancing into a fixed-rate loan is beneficial to most consumers.
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Things You'll Need
- ARM documents
- Income documents (paystubs, W2s)
- Property tax documents
- Homeowner's Insurance
Instructions
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Review the terms of your ARM loan. It's best to make sure that the ARM loan will become disadvantageous in the next adjustment before you decide to refinance. Add the margin of your loan to the current index (Prime, LIBOR) to determine where the rate will adjust to.
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Pull a current copy of your credit report. It's important to have excellent credit prior to refinance. You should also pay for your FICO score, a three-digit number between 300 and 850, to know how your creditworthiness stands. Any score above 720 is excellent. You can obtain a copy of your credit report online at annualcreditreport.com.
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Determine if there will be any other purposes for the refinance. While the main objective is to get a fixed-rate, you should also consider consolidation, cash out, and term reduction, all of which can be accomplished in a refinance. Incessant refinancing costs your dearly, so it's best to take care of all your financial needs with one refinance.
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Begin researching lenders. With an excellent credit score you will likely qualify for competitive rates at banks and credit unions. With a less-than-perfect credit score (below 680) you may need to look at finance companies, such as Wells Fargo Financial and CitiFinancial, for options.
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Make sure any new refinance will cost you less in interest and payments than your existing loan. If your credit is not good (below 600) and your existing mortgage payment is not about to skyrocket, you might consider improving your score prior to refinancing.
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Review all offers. Choose the one that best meets your financial goals and current financial needs. Double-check the closing paperwork before the loan closing to make sure that indeed the refinance has a fixed-interest rate.
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