If you have an adjustable rate mortgage that you are looking to be released, the good news is that it is generally as simple as requiring refinancing.
The bad news is that the interest rate could be much higher today, assuming that you have locked up a super low rate several years ago.
This has been a common scenario lately, the owners opting for arms when it seemed that mortgage rates would never go back. And do not refinance before the rates increase.
Of course, we were all caught by surprise to the speed with which the prices have increased and how much!
For reference, the fixed at 30 years went from around 3.25% to start 2022 to around 6.5% to finish this year, then continued to increase from there. Ouch!
Why do you want to refinance the arm?
Before discussing the process, let’s talk about the why. Why do you want / do you need to refinance mortgage with adjustable rate?
My hypothesis is the first reason why someone would like to refinance an arm would be to avoid resetting the rate.
By resetting the rate, I mean an adjustment where the interest rate increases, sometimes by a considerable amount.
Many arms are today hybrids in that there is a fixed rate period followed by an adjustable rate period.
For example, ARM 5/6 has a fixed interest rate for the first five years (or 60 months) and the ARM 7/6 is set for the first seven years (or 84 months).
After this period, loans can adapt every six months for the rest of the length of the loan, which is 30 years.
This means that you have 25 years of potential adjustments with an arm at 5 years and 23 years of rate adjustments to an arm of 7 years.
The good news is that the arms have ceilings that limit the movement of these adjustments.
As a rule, the rate can only increase two percentage points to its initial adjustment. However, it could be a big leap in monthly payment if it was.
It is for this very reason that borrowers often refinance themselves before the loan becomes adjustable.
Like the original mortgage, you must also be eligible for refinancing
You can refinance an arm like any other type of mortgage, assuming that there is no early repayment penalty and that you are eligible for a new loan.
These are the two key problems. Most loans today have no prepayment sanctions, which will probably not be a problem. But it is always prudent to check just in case.
Even if there is a preparation, you can still refinance, you would simply be subject to costs and need to take this into account in your decision.
The second part is eligible for a mortgage. Just like when you have removed your original mortgage, you need to qualify.
This means having income, assets, jobs and adequate credit stories to be approved for a mortgage.
Without that, you could be lucky and stuck in your arm until your situation changes.
The fact that the mortgage rate could be higher on the new mortgage is potentially exacerbated.
This means that you may have a higher monthly payment, and therefore a high debt / income ratio (DTI), which could compromise your loan request.
One of the main causes of a refused mortgage is too high a DTI ratio. It is therefore certainly something to take seriously.
Anyway, if you think you can satisfy the qualification part and there is no penalty to refinance, the next step is to choose a product that has a financial meaning.
Advice: If you find it hard to qualify for refinancing, adding a co-threatener as a spouse could make you pass on the finish line.
Can you refinance an arm at a fixed rate loan?
| $ 500,000 loan amount | Old 5 year old | New 30 years old |
| Interest rate | 3.5% | 3.25% |
| Monthly payment | $ 2,245.22 | $ 1,951.84 |
| Monthly savings | $ 293.38 | |
| Reason | Avoid resetting the rate and locate a small fixed rate |
Now let’s talk about refinancing options. Like any other mortgage, you can refinance an arm in any other type of mortgage, assuming that you are eligible.
The most common option in recent years, before mortgage rates increased, refined an arm in a fixed rate loan.
In fact, I did it myself at the beginning of 2022 and not for a moment too early. Originally, I had an arm 5/1 and I refined in a fixing of 30 years just in one time.
It was a very simple refinancing process where I simply asked for a new fixed loan of 30 years which reimbursed my arm.
It is no different from any other rate and long -term refinancing, where a loan is paid with another.
Of course, you can also press your equity at the same time, known by the name of refinancing liquidity.
At the time, when mortgage rates were still close to rock-foundation, you could refinance an arm and in a fixed rate mortgage, while obtaining money.
It was a business gentle enough for many, which could abandon the risk of the arm and exploit their equity, all in one fell.
Unfortunately, some owners have missed the boat on this subject. As I mentioned, mortgage rates attracted many people by surprise to the speed with which they increased.
I have a friend who got caught in this mess and could not hang a low level because he continued to repel it and assuming that the rates would be calm.
Can you refinance one arm on another arm?
| $ 500,000 loan amount | Old 5 year old |
New 5 year old |
| Interest rate | 3.5% | 6.125% |
| Monthly payment | $ 2,245.22 | $ 2,725.05 |
| Monthly savings | – $ 479.83 | |
| Reason | To avoid an even higher rate |
This brings me to the other option. Refinancing of one arm in another arm.
Yes, this is also possible because there is really no restriction on the type of loan during refinancing, as long as the bank offers it and you are eligible.
Sometimes the owners simply refinance from one arm to another instead of going with a fixed rate mortgage.
This can be a strategy used by rich owners, who have the capacity to repay the loan in whole at any time, but who want to put their money to work elsewhere.
It is also used by the daily owners who want the discount that an arm offers, instead of paying a bonus for a FRM.
Lately, the discounts have not been great on arms, even if I found that credit cooperatives sometimes offer good deals.
So, hypothetically, you can eliminate a hybrid arm like an arm of 5 or 7 years, then refinance every few years if / when the rates drop, or even if they remain the same.
And savings via the lower rate mean that you will have a smaller -suspended balance. The drawback is that you will reset the clock of your mortgage each time you refinance.
In other words, if you are serious at the idea of reimbursing it in full, it may not be an excellent strategy.
For my boyfriend, he refined another arm only because the rate was about 1% lower. In a perfect world, he wanted a low fixed rate mortgage.
Now, it must be satisfied with a more expensive arm, but the alternative was an adjustment of the rates to say 8.5% or a fixed rate mortgage fixed at 7% or more (some arms can increase by 5% during the First adjustment!).
In the meantime, it can wait for the prices to drop, assuming they do it, and refinance again if it makes sense.
Of course, in a super perfect world, an arm could adapt to a comparable rate (assuming that the rates were stable or lowered) and do not even require refinancing, but I would not necessarily put on this subject.
You can refinance an arm at any time, but most do it before the end of the fixed period
Let’s talk about when to refinance a mortgage with adjusted rate, as time will be a crucial factor.
You can refinance a mortgage with adjustable rate at any time, whether during the fixed rate period of the adjustable period.
As I said, you just have to qualify and hope that there is no early repayment penalty. Do you also want to get a kind of payment reduction in the process, if not what is it for?
Admittedly, in recent years, there have been probably cases where an owner refined an arm to an FRM, despite the higher rate.
For example, moving from an adjustable rate of 3.5% to a fixed rate of 4.5% or even more, to avoid even higher rates that finally surfaced.
Remember that fixed at 30 years reached 8% at the end of 2023, so a rate of 4.5%, even higher than the rate of 3.5% on the arm, was a good deal with the decline.
And even if the borrower had a few years when the rate was set at 3.5%, it could always have been wise to jump the ship.
This is something you need to consider when you remove an arm. This is not a defined and obliged loan option.
You should keep an eye on mortgage rates at any time, especially if your loan is close to its first adjustment.
Otherwise, you could find yourself in a difficult situation, especially if you are not eligible for a mortgage.
In short, the arms come with more risks than fixed rate mortgages, and you need a plan if you decide to remove one.
Just make sure that the discount justifies the risks involved and that you are convinced that you can be able to refinance in the future, to manage higher monthly payments or to reimburse the loan in full.
Read more: Mortgages at fixed rate compared to weapons: which one to choose and why?
Before creating this site, I worked as account manager for a wholesale mortgage lender in Los Angeles. My practical experience in the early 2000s inspired me to start writing on the mortgages 19 years ago to help potential (and existing) buyers better navigate in the mortgage process. Follow me on X for hot catches.