How to Refinance

How to Refinance: Getting Out of an ARM

by Gabriel Traverso
Mortgage Directory Columnist

It isn't always a good idea to refinance your home loan. However, if you currently have an adjustable rate mortgage (ARM) with interest rates and payments on the rise, then it may be time to start looking for a new mortgage.

Skyrocketing Monthly Payments

In the past year, we've seen a rise in interest rates while the price of homes has stabilized. The Mortgage Bankers Association reports over $1 trillion in ARMs facing increases in interest rates this year. For those who have an ARM that will reset soon, payments could jump anywhere from 25% to 50%.

Refinancing: The Basics

When you start looking around at your options, make sure to get as much information as possible before you make a move. Here are some suggestions:

• Check your current home loan for prepayment penalties. Call your lender or check your paperwork to make sure you're not in for an unpleasant surprise down the line.
• When shopping for home loans, compare annual percentage rates (APRs), which include fees and points. Don't just look at interest rates to determine your savings.
• Document your income, rather than choosing a stated income loan. Take the time to collect your tax statements or check stubs. This can save you money in the long run.

With interest rates on the rise, you don't want to wait around to make the decision to refinance. Start researching your options and get a few quotes. Make sure you do your homework and ask lots of questions. It's important to know not only how to refinance, but when to refinance. If you intend to stay in your home more than five years, then shopping for a fixed-rate home loan may be your best move.

Source
The Wall Street Journal

About the Author
Gabriel Traverso is a freelance writer, independent musician, and artist. He resides in Reno, NV.