Refinance

When to Refinance

One common type of refinancing is when you have an adjustable-rate mortgage (ARM) and you refinance to a fixed-rate mortgage. Your mortgage payments with an ARM adjust with changes in the market rates - so when interest rates go up, your monthly payments likely go up. But with a fixed-rate mortgage, your interest rate stays the same for the entire term of your loan. The predictability that comes with locking in the same interest rate for as long as you live in your home is one reason why changing from an adjustable-rate mortgage to a fixed-rate loan is one of the more popular refinancing choices - especially when interest rates are falling.

Or, you may have taken advantage of the traditionally lower interest rates in the first years of your ARM - and now that your monthly mortgage payments have increased, refinancing to a fixed-rate loan looks attractive. You should work with your Fannie Mae-approved lender to compare the financial index, margin, and any rate caps in your existing ARM with current market rates before you decide to refinance to another type of ARM. It is important to understand how often your mortgage will adjust and how much your payment can change with each adjustment and over the life of the loan.

You may be interested in changing from one kind of ARM to another or refinancing with the same kind of ARM to get a lower interest rate. Be sure to ask your current lender whether any conversion terms apply or if there are costs to convert to another type of mortgage.

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