Top Refinancing Tips: Should You Refinance Your Hybrid ARM?

Most of the time, it costs you big bucks to buy the safety of a fixed rate and refinance your ARM. But today's mortgage rates make refinancing a much easier decision, even if you like your current mortgage. Here's how to think through the refinancing decision if you financed your home with a hybrid ARM.

Refinancing if you're a short-timer: compare mortgage offers before deciding

If your initial fixed mortgage rate is good for a couple of years, and you plan to sell your home in that time, you don't necessarily need to do anything. But you might want to (unless you have something against free money).

Check out rates on a new hybrid adjustable rate mortgage. Ask about 3/1 and 5/1 rates, because they are lower today than the 4 percent you are probably paying now -- and these new rates are fixed for three or five years. Your closing costs may be discounted because your last refinance wasn't that long ago.

Call your title company and ask about a short or discounted rate. Then check with several refinance mortgage lenders to see what kind of interest rate you could get if the lender were to cover all the closing costs. If it's better than the one you have, why not refinance?

Refinancing if you're in it for the long haul: an easy decision

If you plan to keep your home for some time, the decision becomes easy. Yes, you could wait two more years and then refinance, but why would you? If mortgage rates then are lower than average, they could still be considerably higher than they are today. With today's low mortgage rates, there simply isn't room for them to drop further. So there is no upside to waiting, and there's a huge potential downside.

Your biggest decision isn't whether to refinance but which home loan product is right for you.

Choosing a new mortgage

Which mortgage product you hone in on will depend somewhat on your primary motive for refinancing.

• You want to pay less interest.If your finances have improved since you last mortgaged your home, you may want to consider a 15-year fixed-rate mortgage refinance. That secures you an interest rate about half a percent lower than current 30-year fixed rates and can lop off hundreds of thousands of interest charges over the life of your loan.
• You want steady payments.If you know that you'll be keeping your home until your kids move out or you retire, a 30-year fixed-rate mortgage might be the way to go. The payment is more manageable than that of the 15-year mortgage, and right now you may be able to get that low fixed rate without increasing your monthly payment at all from the ARM.
• You want to save the most money.For folks who plan to keep their homes another five years or so, another hybrid ARM could save a bundle. Initial fixed mortgage rates on hybrid ARMs are near 3 percent for the most highly qualified applicants. Use the extra savings to pay off higher-interest consumer debt or sock it away in your investment accounts.

Make a good deal even better

Mortgage rates today are so low -- every day it seems like a new record has been set -- but mortgage lenders still vary widely in what they are willing to offer.

If you want the best savings you can wring from these unusual times, you need to shop with more than one lender. Call the company that holds your mortgage and complete the form on this site. Then choose your refinance mortgage lender and pull the trigger on your best deal.