Refi into ARM for faster mortgage payoff

Trick is to continue previous loan's larger payments

One of the interesting features of the current mortgage scene is that some borrowers with adjustable-rate mortgages (ARMs) are refinancing into fixed-rate mortgages (FRMs), and some with FRMs are refinancing into ARMs.

My exchanges with borrowers on both sides of this divide indicate that differences in opinion on where interest rates are headed have little bearing on their plans. The major difference between the groups is their expectations about how long they will have their mortgage.

I wrote about borrowers refinancing out of ARMs into FRMs last year. These borrowers generally expect to have their mortgages a long time. For this reason, they are willing to pay the higher rate on an FRM now in order to avoid the risk of an even higher rate in the future if they retain their ARM.

While many of them look to delay the decision (and retain their low-rate ARM) as long as possible, they also fear that if they wait too long, the market might change so quickly that the refinance option will be lost. That’s why I entitled my article "Low-Rate ARMs and High Anxiety."