Ethical Homes

The short-term indices that determine the rates charged to holders of ARMs have been rising steadily for a while now, and long-term rates have finally started to rise as well; as a result, many homeowners who used ARMs to purchase their homes should at least consider refinancing their loans as fixed-rate mortgages to lock in the still-relatively-low rates before they vanish.

If long-term rates were rising but short-term rates were staying low, sticking with an ARM might make sense for more risk-tolerant homeowners who wanted to try to “ride out” their ARM in hopes that the savings on lower short-term rates now would offset the higher rates in the future; similarly, if short-term rates were rising but long-term rates were staying low, some owners might opt to stick with the lower ARM rates for now, betting that they would still have a chance to refinance before long-term rates rose significantly.

Since all signs point to both rates continuing to rise for the forseeable future, however, I’d advise most holders of ARMs (or hybrid ARMs whose fixed-rate period will expire in the next few years) to at least look into refinancing to lock in a fixed rate. Many homeowners who bought in the DC area in the last few years did so with less than 20% down; for many of those homeowners, refinancing now would also present a good opportunity to take advantage of the accumulated equity that the hot market has created for them, by allowing them to refinance without a second mortgage or PMI if their current equity is greater than 20% of the value of their home.

Interested in finding out about your options for refinancing? Drop us a line and we would be glad to talk to you about your situation, including showing you some scenarios for how your monthly payments could change over the next few years if you do or don’t refinance. If you think refinancing might make sense for you, we’d also be glad to put you in touch with a good lender.