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Refinancing Adjustable Rate Mortgages

Refinancing, although slowing, is alive and well. Last week we discuss HELOCs. Many of Orion’s brokers clients purchased or refinanced their homes in the past with intermediate adjustable rate mortgages, or intermediate ARMs, which have a period where the rate is fixed and then enter a period where the rate adjusts, usually annually. For example, if a client has a 5/1 ARM the rate is fixed for five years and then adjusts annually for the remaining 25 years. A 3/1 is fixed for three years, and so on.

If a client has an intermediate ARM on their property and are approaching the end of the fixed rate period, a viable question arises; should they retain the ARM or refinance to a fixed rate mortgage with the help of Orion?

Our Orion AEs tell clients that the answer to the question differs depending on individual circumstances and comfort levels of risk. There are a few factors to consider when deciding if someone should refinance from their current ARM mortgage or stick with it, and Orion’s experienced brokers ask their clients:

What is your loan balance? What is the current fixed interest rate on the loan? What is the index and margin on the mortgage that will take effect when it becomes adjustable? Realistically, how long do you think you will remain in the property?

Fortunately, many of our broker’s clients have seen their home appreciate, so there is equity. Although rates have gone up versus a year ago, by historical standards they are still low, and we are seeing many clients lock in the security of a fixed rate.

Brokers will help answer these questions, at which point Orion can help you determine if it makes sense for the client to refinance or retain their current mortgage. With the recent dip in rates, many homeowners can refinance to lower rates compared to what the rate will be on the intermediate ARM after the initial adjustment.


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