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How to Refinance Your ARM Into a Fixed-Rate Mortgage

Did you know the two most common reasons people refinance their mortgage loans is to (A) get a lower interest rate and (B) switch from an ARM loan into a fixed-rate mortgage? It's true. And in certain cases, you can accomplish both of these goals at the same time. The question many homeowners have is — how do I do it? In this article, I'll explain how to refinance an ARM into a fixed-rate loan, and why it's usually a good idea to do so.

Reasons to Refinance to a Fixed-Rate

The adjustable-rate mortgage (ARM) loan has certain pros and cons. If you use it wisely, it could save you money for a period of time. But it can also bring a lot of financial uncertainty with it, especially after the first few years. I won't go into the details of how this loan works — you can learn all of that from our guide to ARM loans.

It boils down to this. The adjustable mortgage is not a good idea when you plan to say in a home for many years. In such cases, the fixed-rate mortgage loan is usually a better option. And that's why a lot of people refinance away from their ARM loans and into the stability of a fixed rate. If you can do this and secure a lower interest rate at the same time, even better! With a fixed-rate mortgage, you have the comfort of knowing your rate will never change, regardless of how long your keep the house and the mortgage loan.

Refinancing Away from the ARM Loan

So you've decided to say goodbye to your ARM loan and move into the stability of a fixed-rate mortgage instead. How do you get started? In essence, the process is a lot like the one you went through when you first bought the home. Only this time, you'll be applying for a loan as a homeowner instead of a buyer. You will replace your original mortgage with an entirely new one, hence the term refinance. And within this context, you'll be replacing your ARM loan with a fixed-rate mortgage as well.

Here are the basic steps you'll go through when refinancing out of your adjustable-rate loan:

• Do some initial research to find out how much equity you have in your home. You'll need to know the current balance of your mortgage, as well as the value of your home in the current market.
• Once you've determined that you have some equity in your home (and that your not upside down in the mortgage), you can begin to gather refinance quotes from lenders. I recommend getting online quotes from reputable websites like LendingTree.
• When you request quotes from lenders, be sure to specify that you want a fixed-rate loan. Remember, that's the whole point of this tutorial, to refinance your ARM loan into a fixed mortgage.
• When you get offers from lenders, you need to do the math to see if refinancing makes sense. You want to ensure that the money you save with the new loan is greater than the closing costs to get the loan. This article will help you run the numbers.
• If you've determined that the refinance makes sense, and if you get approved for the loan, your chosen lender will then schedule your closing date. They will also work with your current lender about paying off the old mortgage.

Obviously, this is just a basic overview of the steps you'll go through to refinance from your adjustable-rate mortgage / ARM loan to one with a fixed rate. More a more detailed look, check out this excellent article that explains the refinancing process from start to finish.