Stay with Current ARM or Refinance Now?

Gina in Gainesville, Florida called into the show. Gina owns a home in Gainesville and refinanced it at a 5% interest rate in 2003. The loan is a 7/1 adjustable rate mortgage and last year in August Gina allowed it to roll over and the rate dropped to a 3.99% interest rate. She called Robert Palmer to ask if there was any reason not to allow it to roll over again this August?

In a situation like this it is going to depend on a few factors. It is going to depend on the market and which index the ARM is tied to, Libor or CMT. It really depends on what that index does and whether the market stays like it is. Libor has risen a little so the rate may be a little higher than where you are now. You can look up the Libor rate on the internet and take a look at it. As long as Libor stays low you're going to be in a great situation. The catch-22 is that when Libor starts to rise that also means that the fixed interest rates are going to be on the rise. So the options you have are that you can refinance now and lock in today's historically low rates or stay with the ARM a couple more years with an even lower rate because you've adjusted so low. On the flip side, as rates start to go up and you decide to refinance later the fixed rates will also be higher. In this situation you have to look at how many more years you'll be in the home and what is going to be best for your financial situation. Since Gina is only wanting to stay in the home a few more years I recommend she stays where she is at. If you refinance now it will cost between $2,000 and $3,000 in closing cost and that may offset any potential savings you could have from refinancing.