Last year, I wrote an article advising borrowers on how to determine whether refinancing an adjustable-rate mortgage (ARM) into a fixed-rate mortgage (FRM) was advantageous. On recently rereading that article, I winced with the realization that I had made the problem more complicated than it had to be. Since the question continues to confront many borrowers, this article attempts to make amends. The problem with my previous article is that it implies that a borrower cannot conclusively determine whether refinancing will pay without using a calculator. That is not the case. While writing the article, I developed a calculator to address the problem, and I allowed myself to become so heavily invested in it that I couldn't see any way to operate without it. To properly assess this refinance decision, the borrower needs four pieces of information: 1) The current rate on his/her ARM; 2) The period until the next ARM rate adjustment; 3) The current fully indexed rate (FIR) on his/her ARM; an...
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