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|
|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.
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