Make Money - Refinancing an ARM Mortgage

Question: I am 2 years into a 5-year ARM. Interest rates seem to be going up, should I wait to refinance or should I be looking into this now?

Dr. Gala's Response: You are correct, interest rates have been rising - 15 times since June 2004. With any market, including interest rates, there are cycles. Eventually rates will stabilize and most likely even decrease. Since we don't have a reliable crystal ball, we can only deal with the known. You should review your paperwork and determine how much your payments can increase in years 6 and beyond. Another serious consideration is your ability to obtain suitable financing when the time comes. Managing credit scores is a critical component in any financing decision. When I work with someone, the first thing I do is review their credit including their FICO scores. If you believe there is a risk that your scores will go down in the next few years, then that would help make the decision to refinance sooner rather than later. Can you continue to make all of your payments timely? While the costs of refinancing are significant, if your credit scores decline your options will be restricted and your hands will be tied.