interest rates rising

With interest rates rising, we recommend that all our readers check their mortgage terms. If your loan is an ARM (adjustable rate mortgage), you should strongly consider 1) locking your rate and converting to a fixed rate loan, or 2) refinancing into a fixed rate loan. ARMs have a provision that allows borrowers to convert their floating interest rate to a fixed rate during a particular time window (often the 12th to 60th months of the loan). Your mortgage papers will tell you what index and margin would be used to determine your fixed rate. For instance, if your index is the LIBOR (London Interbank Offered Rate) and your margin is 5%, then your fixed rate would come out somewhere around 5.8% as of today's date.

Converting an ARM could be a good option for people whose credit scores don't qualify them for the lowest refinance rates or whose index + margin calculation comes out lower than current interest rates. It may also be a good choice for folks who can't refinance due to high debt to value ratios or because they own a type of property, such as a condo, where financing is tight and/or expensive. Refinancing might be a better option if current interest rates are below your conversion interest rate, or if you have provisions in your loan, such as a balloon payment, that you'd like to get rid of. However, it's important to consider that a refinance will cost several thousand dollars (which may be wrapped into the loan in some cases), whereas a conversion is essentially free. Make sure you run the numbers to see how you'll come out ahead. But be sure to do them, because rising interest rates could float your ARM rate to an unaffordable level.

If you have an ARM, we recommend that you talk to a reputable lender to esplore your options. If you don't remember your loan officer's name, give us a call. We can look up the information or recommend other talented and trustworthy mortgage professionals.