Summary: This is part of an ongoing blog series that discusses commonly used mortgage strategies among home buyers and homeowners in Washington. Today, we’ll talk about how a homeowner in Washington State could benefit by refinancing from an adjustable-rate mortgage (ARM) into a fixed-rate home loan.
Do yo ucurrently hold an adjustable-rate mortgage? If so, refinancing into a fixed-rate mortgage might help you save some money if you play your cards right and if the current market makes this a viable option.
Adjustable Versus Fixed Mortgage Loans
Before we get into the reasons why a homeowner might refinance from an ARM into a fixed-rate loan, let’s do a quick review of the terminology:
- An adjustable-rate mortgage loan has an interest rate that can change periodically over time. Most of the ARM loans in use today are “hybrids” that start off with a fixed interest rate for a certain period of time, after which they change or reset annually.
- A fixed-rate mortgage loan, in contrast, has a rate that generally stays the same over the life of the loan. As a result, the borrower’s monthly payments tend to stay the same as well. There are different versions of the fixed mortgage, but that is typically how it works.
So right away, you can see why a homeowner in Washington state might refinance an ARM into a fixed-rate loan. Adjustable mortgages tend to start off with lower rates when compared to a long-term fixed rate loan. But that’s only during the initial stage. ARMs live up to their name by adjusting annually once that initial stage has passed. And this is when a lot of homeowners start to consider a refinance.
The ideal scenario, for most homeowners in the situation, is to refinance from an ARM loan into a long-term fixed mortgage while rates are relatively low. This strategy makes sense if you plan to stay in the home for the foreseeable future.
Rate Changes: Refinancing Now vs. Later
While no one can predict future mortgage rate trends with complete accuracy, the general consensus among analysts is that interest rates will remain low throughout 2020.
Rates have been on a steady decline since November 2018. The average rate for a 30-year fixed-rate mortgage currently sits at 3.28% and is expected to stay under the 4% mark for the rest of the year, according to the weekly survey conducted by Freddie Mac.
On May 14, 2020, the company reported:
“Mortgage rates have stabilized at very low levels over the last few weeks as homebuyer demand slowly improves. Although purchase applications reached a new low in mid-April, today purchase demand is only down ten percent from one year ago. While demand is improving, inventory is low and declining with no signs of a turnaround yet.”
The big picture here is that many economists expect that rates will stay low. Homeowners in Washington with rates over 3.28% might be able to save quite a bit of money by refinancing at a lower rate today.
Other mortgage strategies in this series:
Let’s Run the Numbers on Mortgages
Do you have questions about home loans? Are you ready to apply for a mortgage to buy a home? If so, Sammamish Mortgage can help. We are a local mortgage company from Bellevue, Washington serving the entire state, as well as Oregon, Idaho, and Colorado. We offer many mortgage programs to buyers all over the Pacific Northwest. Contact us today with any questions you have about mortgages.