refinance

Mortgage refinance rates luring borrowers

Mortgage refinance rates are still low, so it's a good time for homeowners with adjustable-rate mortgages, or ARMs, to weigh whether it makes sense to refinance into a fixed-rate loan.

ARMs, unlike fixed-rate mortgages, have a set interest rate for a relatively short period of time, often three or five years, which afterward readjusts annually. In contrast, a fixed-rate loan has one interest rate for the entire span of the loan, which is typically for 15 or 30 years.

When an ARM makes sense

Many homebuyers turn to ARMs because a lower interest rate and lower initial payments allow them to buy a home. Or they want to purchase a larger home than they otherwise might be able to afford.

ARMs also appeal to those who expect to stay in a home for a short period, such as a military family or a corporate executive, and plan to move before the loan resets.

These days, low mortgage refinance rates can make ARMs and fixed-rate loans attractive options.

Avoid rising rate risk

Refinancing into a fixed-rate loan allays any concerns about the interest rate increasing over time. That's particularly important if you intend to stay in your home for many years.

A fixed rate also benefits those who might have intended to move up to a bigger home or to a new neighborhood or town but now cannot, whether because their home's value has plunged or because the economy has made it tougher to move to a different city.

Bankrate.com can help you check mortgage refinance rates in your area for various products, including 15- and 30-year fixed-rate loans, 5/1 ARMs and 7/1 ARMs.

You can use a refinance calculator to figure out if you should proceed with trying to convert your ARM into a fixed-rate mortgage based on current rates.

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