Refinance My Mortgage – I Want to Fix in My Adjustable Rate and Lower My Payment

You cannot go from an adjustable rate to a fixed rate mortgage and lower your payment. The low introductory rate on your ARM was artificially low. The loan officer probably told you that by the time your mortgage adjusts, you can refinance or sell to get out of it. Unfortunately, that payment may be more than you could afford already. Now, you haven’t made any plans to move so you are looking at a refinance and not liking what you see.

Most people have no idea what their mortgage note says. Some do not even keep copies of it. You only focus on your payment. If you feel comfortable paying it, then the mortgage could be a disaster waiting to happen and you would not know it.

Advertisers all over are telling you to get out of your adjustable rate mortgage and refinance into a fixed one. And that could not be a smarter idea right now. You may know your loan is adjustable so you check into a refinance.

When you got your mortgage your interest rate was 5.00% for example. When you inquire about a fixed mortgage rate you find out they are around 6.250%. On a $230,000 mortgage, the difference in payment would be roughly $180 more than you pay now. And you proceed to freak out.

But what you are missing is the payment you enjoy now is only good for another couple of months. The payment will go up anyway. The question you should be asking is how much? At least with a fixed rate mortgage you know what your payment will be forever. It will never change.

No one ever plans to be in an adjustable rate mortgage when rates are going up and you may be asking, what makes the payment on an ARM go up anyway? The rate for an ARM is calculated by adding together an index and a margin. The introductory fixed rate you got in the beginning of the ARM is not the actual rate.

Every ARM is different and you have to check your mortgage note but most have the introductory fixed part for 1 to 10 years and then it adjusts after that. But the mortgage has been adjusting the whole time you just did not know it. When your introductory period is over, the payment starts changing.

You have to check your mortgage note to find out how much it will rise on the first adjustment. Some ARMs have a 5 point first adjustment cap! That means when your introductory period is over, your interest rate could go up 5 points.

Why would your ARM adjust only upward, can they go down too? Yes they can go down but that is not what is happening in the market right now. Just a couple of examples of different indexes are the Treasury and the Libor. The Treasury has gone up from 1.595% in September of 2004 to 4.863% in September of 2007. The Libor has gone up from 2.1695% September of 2004 to 5.53500% in September of 2007. Your margin is the number that stays the same so add the margin to the index and that is your rate. You can find your margin on your mortgage note also. Most loan officers do a horrible job of explaining an adjustable rate mortgage to their clients. They do not even know exactly how they work but they do know how to sell them.

If you are planning to stay in your home, you do not have a choice. Even if your adjustment period is a few years off, property values are dropping all over. Your house may not be worth what it is today. Your payment will go up either with a refinance or with the adjustment. Which would you rather have, a 6.25% rate or a 10% rate?

Good Luck!

Rob K. Blake, author of the BUILD System, shows you how to "Refinance My Home" and always get the lowest rate possible! Rob has created a new mortgage calculator called "No Cost" Mortgage Software- Saving You Thousands Even Without Refinancing! Click to have Rob "Teach Me How To Refinance My Mortgage" for the only "insider" tips and tricks!