Mortgage Blog

Q: My ARM rate for the rental expires this June. The current rate is 3.5%. I got the letter from the lender to ask me to refinance to fixed rates. The loan amount is 180k. So what do you suggest?

A: Though the rate will go up, so does the ARM reset rate. I still do not recommend to refinance.

1)If your ARM rate is reset, it will be the same as primary home ARM mortgage rate reset. So if we compare the reset rate in June, and your refinance rate, your reset rate will be lower.

2)If your loan refinanced to 30 yr fixed, the rate will be around 4.75% to 4.875%. This rate will be 1% higher than the reset rate(we expect the reset rate around 3.875%). So the reset rate is still lower.

3)If Fed increase the rate 1% higher, your rate could be higher. But still the June reset rate will be fixed for another year.

4)If your rate reset another 1% higher next year, it would be still the same as current 30 yr fixed rate. You still do not miss anything. You will only miss the opportunity if the Fed increase 2% from the current level, even if this happened, your monthly payment  still does not increase too much since the loan amount is small. And it will be even smaller after two years.