If you’re nearing the end of the initial term on your adjustable-rate mortgage (ARM), you might be wondering if now is a good time to refinance. And, if so, should you switch from an ARM to a fixed-rate mortgage?

In general, fixed-rate loans are good when rates are low or on the rise, because they lock in your payment and help you avoid constant rate increases. If rates are dropping, then an ARM lets you benefit from those decreases.

Can you refinance an ARM loan?

You can refinance any mortgage, and that includes refinancing adjustable rate mortgage loans. When you refinance an ARM or any other mortgage, you replace your existing loan with a brand new one.

Lenders typically offer specific mortgage refinancing loans, so you’ll use their refinance application form to apply. Beyond that, the process is like your initial mortgage application. But the fact that you already own the home can make some parts of the process0 — like inspections and appraisals — a bit easier to schedule.

Keep in mind that you can choose the lender when refinancing an adjustable rate mortgage. It could be your current lender or a different one, depending on which institution can offer you the best rate, service and terms.

Ultimately, can an adjustable-rate mortgage be refinanced? Yes. But should you refi yours? That depends. To help you make the right decision for yourself, let’s look at how and why you might want an ARM refinance.

How to refinance an ARM

To give yourself a good chance of qualifying for an ARM refinance, try to meet these requirements:

  • Own the home for at least six months
  • Have at least 20 percent equity
  • Have a credit score of at least 620 (for a conventional loan)
  • Have a debt-to-income ratio under 50 percent

Also, keep in mind that you’ll incur closing costs on the new loan, so you’ll want to make sure that you can afford them. As you’re doing that math, make sure that refinancing your adjustable rate mortgage saves you more than it costs.

The idea of trading away the uncertainty of an adjustable-rate mortgage for the certainty of a fixed-rate mortgage is appealing, especially if you’re expecting an adjustment in the next year or two.

— Greg McBride, CFA, chief financial analyst for Bankrate

Benefits of refinancing an ARM to a fixed-rate mortgage

So, why would you want to refinance an ARM to a fixed loan? If you’ve never had a fixed-rate mortgage, here are the key upsides of this type of loan:

  • Your payments are always the same: A fixed-rate mortgage gives you the certainty of predictable payments. Rather than wondering how the market and economic trends will impact your adjustable rate — and consequently your monthly payments — you’ll enjoy a bill that never changes for the entire loan term.
  • You can budget more easily: With a fixed-rate loan, the stable sum you put towards your major housing cost allows you to more effectively budget for the other expenses in your life, both now and in the future.
  • You still have options: If a 30-year mortgage sounds like a lifetime, you can also look at a 15-year fixed-rate mortgage. The interest rates on this type of loan are even lower than the rates for a 30-year fixed loan, but the tradeoff is that you’ll have higher monthly payments due to the accelerated timeline.

 Should you refinance an adjustable-rate mortgage to a fixed-rate mortgage?

Can you refinance an ARM loan? Sure. But should you? The rising mortgage rates in recent years might make this less appealing if your ARM originated back to the pre-pandemic days.

On the other hand, if your introductory rate is about to end, refinancing might make sense. With rates much higher now than they were, say, five years ago, the rate jump you might experience could be a shock. If you can secure a lower rate on a fixed-rate loan than the rate your ARM is about to adjust to, choosing to refinance ARM to a fixed rate is a smart move. And locking in a fixed rate gives you predictability despite any rate environment changes that arise in the coming years.

So, can the ARM mortgage be refinanced to your financial gain? To find out in your specific situation, consider your:

  • Credit score: Do you have a high enough credit score to obtain a competitive interest rate?
  • Financial goals: Would rather prioritize another goal such as paying off high-interest debt?
  • Longer-term plans: Will you stay in the home long enough for you to exceed the break-even point on your closing costs?
  • Ability to afford closing costs: Will the burden of paying closing costs outweigh the benefits of a lower monthly payment?

To help with your decision-making, let’s look at a few of those key factors more closely.

How is your credit?

Refinancing isn’t an automatic money-saver. You need to have strong credit to qualify for the lowest rate and the biggest savings opportunity. If you’ve been making timely payments on your ARM, that should be helping elevate your credit score.

“Someone coming up on the end of an ARM presumably has five or more years of timely mortgage payments on their credit history,” says Austin Kilgore, director of corporate communications at mortgage firm Achieve. “There’s a good chance their credit score is better now and they may qualify for something better.”

If your credit could use some work, however, it’s best to wait to refinance until you’ve improved your score. Check your credit report for any errors, such as incorrect contact information — and if something’s amiss, contact the credit reporting agency as soon as possible to get it fixed. If you can, pay down or pay off other debt, and continue to make credit card and other loan payments on time each month.

What are your financial goals?

Think about the financial goals refinancing can help you achieve, such as paying off your mortgage sooner, liquidating some of your equity with a cash-out refinance or consolidating debt.

Will the ARM refinance help you toward your specific goals? For example, while a cash-out refinance increases the amount you owe, you’ll be able to use the funds for home improvements or other expenses.

How long do you plan to stay in the home?

When refinancing adjustable rate mortgage loans, time matters. If  you have no intention of moving or selling your home anytime soon, choosing to refinance an ARM to a fixed fixed-rate mortgage can be a smart decision. If a move is on your near-term horizon, however, it’s likely not worth the cost to refinance.

For example, if you’d save $100 on your monthly mortgage payment by refinancing, and the closing costs are $2,000, it’d take you 20 months, or close to two years, before you really start to see savings. Bankrate’s mortgage refinance break-even calculator can help you run the numbers for your situation.

“If you’re only looking at being at home for three or four more years and you have four years before it resets, and a new loan is not at least three-eighths of a basis point lower than your current rate, you might as well stay in your ARM,” advises Ralph DiBugnara, founder of Home Qualified, a digital resource for homebuyers and sellers. “There’s no financial benefit to move forward into a fixed rate.”

The bottom line on refinancing an ARM into a fixed-rate mortgage

Ultimately, can you refinance an ARM loan? Absolutely. But the ARM refinance only makes sense if it helps you toward your specific financial goals. Compare rates and crunch the numbers to see if refinancing your adjustable rate mortgage is right for you.

Additional reporting by Kacie Goff