I bought a home almost 5 years ago with a 5-year fixed ARM at 4.25%. I just got a notice estimating that my new rate will be 8.75% this summer, based on the index rate. My rate cap is 9.25%. For anyone who has been through an ARM adjustment, how accurate were these estimates when the time came?
That’s a tough situation, especially having an ARM in a low-rate environment. Unfortunately, the estimate is likely pretty accurate.
Taylor said:
That’s a tough situation, especially having an ARM in a low-rate environment. Unfortunately, the estimate is likely pretty accurate.
I was 18 when I bought the house and followed my co-signer’s advice. By the time I built enough credit to refinance, rates had already climbed.
@Mal
Depending on your credit score, you should still consider refinancing into a fixed rate now. You might find something in the mid-6% to low-7% range.
Corey said:
@Mal
Depending on your credit score, you should still consider refinancing into a fixed rate now. You might find something in the mid-6% to low-7% range.
I just took out an auto loan two weeks ago, so my score might be a bit lower now. It was 735 at the time.
@Mal
That’s still a good score—refinancing could still make sense.
@Mal
At that projected rate, you might want to focus on prepaying your mortgage to reduce the total interest. Typically, ARMs make sense in high-rate environments or for borrowers who can pay them off quickly. If that’s not your case, refinancing into a fixed rate might still be the safer move.
@Taylor
Thanks for the advice—I’ll definitely look into that!
@Mal
Your ARM rate is based on your index rate plus a fixed margin. Check your documents for the specific index being used. If your rate cap is 9.25%, staying with the ARM could be okay if refinancing isn’t an option. However, if you qualify for a fixed-rate mortgage now, it might be worth the switch.
It’s wild to think about not refinancing when rates were at 3% or lower in 2020-2022. Missed opportunity there.