4 reasons to refinance your ARM into a fixed rate mortgage in 2021


Personal Finance Insider writes about products, strategies, and tips to help you make informed decisions with your money. We may receive a small commission from our partners, such as American Express, but our reports and recommendations are always independent and objective. The conditions apply to the offers listed on this page. Read our editorial standards.

  • If you have an adjustable rate mortgage, you may want to refinance a fixed rate mortgage in 2021.
  • Mortgage rates are at their lowest, so you can probably get a better rate now and lock it in for the life of your loan.
  • Rates can’t stay that low forever, so your ARM rate will likely increase later if you don’t change it to a fixed rate.
  • Refinancing into a fixed rate mortgage could save you thousands of dollars over the years.
  • Sign up for the Personal Finance Insider email newsletter here »

If you have an adjustable rate mortgage, or ARM, you may want to consider refinancing to a fixed rate mortgage in 2021.

Maybe you know you want to refinance but haven’t decided between an ARM and a fixed rate mortgage yet. We’ll make the answer simple: go for the fixed rate.

Or maybe you haven’t even considered refinancing this coming year. But if you have an ARM you might want to think again.

Everyone’s situation is different, so you should consider whether refinancing is the best option for you before you apply. But here are four reasons why fixed rate refinancing might be a good idea.

1. Mortgage rates are at their lowest

Falling mortgage rates are often the result of a struggling economy. As the United States grappled with the coronavirus pandemic and the Federal Reserve lowered the federal funds rate in 2020, mortgage rates are currently at historically low levels, which is a beacon of hope for investors. owners.

The CEO of United Wholesale Mortgages Mat Ishbia told Business Insider that a lot of people thought they were getting great mortgage rates a year or two ago, under 4%. But now those same people are entitled to 30-year fixed rates of less than 3%.

If you can qualify for a lower mortgage rate than the one you had when you took out your original mortgage, you might consider refinancing.

2. Fixed mortgage rates start to be lower than adjustable rates

Yes, mortgage rates are low overall, whether it’s a fixed rate mortgage or an adjustable rate mortgage. But fixed rates currently start at lower rates than adjustable rates.

This was not the case before. For a long time, lenders made ARMs attractive by offering very low rates during the introductory period, making them better deals for the first few years than fixed rate mortgages. Then your rate might increase or decrease once a year after the introductory period ends.

This is no longer the case, however; fixed rates start lower than adjustable rates.

If you are already considering refinancing but are trying to decide between a fixed rate mortgage or ARM for the new mortgage, know that a fixed rate will save you money.

3. An adjustable rate could increase down the road

The periods of very low introductory rates were not the only advantages of MRAs. Each year your rate goes up or down, depending on the US economy and the housing market. So there was always a chance that your rate would drop for the year.

But because the rates are so low right now, it’s almost guaranteed that your adjustable rate will go up and you will end up paying more.

Rates should stay low well in 2021 and maybe longer, so your rate might not increase this year or even the next. But it will go up at some point because rates cannot stay that low forever.

If you got your ARM some time ago, your rate might actually go down over the next few years because the rates are at their lowest. But if you still have a long time to go before you fully pay off your mortgage, your rate could rise further over time. At the very least, it could adapt to a higher rate than what is currently offered. It might be better to eliminate this risk by getting a fixed rate.

If you only have a few years left on your ARM, there is probably no point in refinancing, as the amount you spend on closing costs could be more than what you would save with a lower rate. But if you still have a good deal of time left on your ARM, you might consider refinancing.

4. Variable rate mortgages offer no benefit to borrowers at this time.

Between periods of higher introductory rates and subsequent increases, ARMs currently have no advantage over fixed rate mortgages. They’re going to cost you more over the years, and there’s no hidden benefit to MRAs to offset the extra costs.

“I do not think so [United Wholesale Mortgage] even did an ARM last month, and we’ve had almost 60,000 closures, ”Ishbia said. “I don’t think anyone is doing adjustable rate mortgages. “

There may be a day when MRAs become beneficial again, but it doesn’t look like it will be anytime soon. For now, you may want to refinance into a fixed rate mortgage in order to save thousands of dollars.

Laura Grace Tarpley is Associate Editor of Banking Services and Mortgages at Personal Finance Insider, covering mortgages, refinancing, bank accounts and bank reviews. Prior to joining the Business Insider team, she was a freelance writer for publications such as SoFi and The Penny Hoarder.


Comments are closed.