Refinancing an ARM loan with another ARM loan, good or bad idea?

Angel in Tampa called into the show concerning his current 3/1 VA loan. Right now Angel has a 3.5% ARM and his current lender is calling suggesting he refinance his loan with a 2.5% ARM. Angel asks Robert Palmer if he should refinance his current ARM loan as an ARM refinance or move into a fixed loan?

A lot of lenders will encourage their borrows to use them to refinance their ARM loans when the fixed year term is ending. Refinancing every three years means paying VA fees and closing cost every time. Paying 3-4% closing cost every 3-4 years can add a full 1% cost. The ARM rate is a combination of the index plus the margin. The index is a published rate while the margin is variable and is added to the index to get the rate. Refinancing with a 30 year fixed mortgage breaks this cycle. In the state of Florida there are no state income taxes, so in turn there are higher fees when refinancing to the state making refinances expensive. A 30 year fixed mortgage may have a slightly higher interest rate, but in the long run it will end up saving the borrower money by not having to pay these fees over and over every three to five years and it locks in the lower interest rates that we are able to take advantage of in today's market.