Refinancing Your Adjustable Rate Mortgage
By Clinton Bengtson
If you were enticed by the low rates of an adjustable rate mortgage (ARM), you are not alone. A lot of borrowers that refinanced or purchased a home chose an ARM that adjusts in 2, 3, or 5 years. That s OK as a temporary solution. However, if you have an ARM that s adjusting soon, you should prepare for your refinance in advance.
Check the following items about your mortgage right away:
1. Find out if you have a prepayment penalty. A 2 or 3 year ARM usually has a prepayment penalty. Check your loan paperwork to find out when it expires. It s usually matched up with the “fixed” term of your loan.
2. Find out when your mortgage adjusts. By law, a lender needs to inform you at least 45 days in advance of your rate adjustment and the new rate and payment. Don t count on this letter because it may not arrive or it may not get opened.
3. Monitor your credit. Many borrowers chose an adjustable rate mortgage because it was their only option given their credit situation. If your credit is worse or even the same, you may not get approved for another mortgage. Lenders have changed their guidelines recently.
4. Don t expect the same low rate. If you are refinancing from an ARM to a fixed, your rate may increase. That s especially true if you had good credit and are refinancing to a fixed rate.
5. Check out the value of your home. If you purchased your home with zero down, you may have little or no equity. Most lenders won t refinance you if your home is worth less than the new mortgage amount.
6. Prepare in advance for your refinance. Do your homework ahead of time.
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Clint Bengtson has been a trusted mortgage professional for more than 6 years. You can contact him at 763-712-1569 or at http://www.mnmortgage.net
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