Convert to a fixed-rate loan
An Adjustable-Rate Mortgage (ARM) can be a good choice if you plan to stay in your home for a short time or if you want more manageable payments upfront.
If you find you’ll be living in your home longer, or if your ARM adjusts to a rate that’s higher than current conventional mortgage rates,
refinancing to a fixed-rate mortgage may make sense.
Example: The Smiths purchased a home for $200,000 with a 5/1 ARM as they originally intended to sell the property before the initial fixed-period ends. After 3 years, they decided to stay longer and refinanced to a 30-year fixed-rate mortgage.
| Loan Amount | Interest Rate | Monthly Principal and Interest (P&I) Payment | Principal Balance at 3 Years |
|---|---|---|---|
| $150,000 | ARM 2.250% | $573 | |
| Maximum rate at 1st payment | ARM 4.250% | $753 | |
| Refinance $139,131 to a 30-year fixed-rate | Fixed 3.750% | $615 |
*Principal balance assumes that the borrower will pay all closing costs out of pocket.