Adjustable Rate Mortgage Refinance

There are numerous refinance options that are available in the mortgage market today. A common mortgage options is the adjustable rate refinance mortgage. The main reason this option is popular is because most home owners want to have the lowest possible interest rate.

What is an Adjustable Rate Refinance Mortgage?

Adjustable rate refinance mortgages or ARMs are very different from more traditional fixed rate refinance mortgages. The most obvious difference is the interest rate and the monthly amortizations change with market interest rate fluctuations. Most adjustable rate refinance mortgages have an initial period where the interest rate does not change. However, as this initial period expires, the interest rates may increase or decrease and will affect the mortgage payment at certain intervals throughout the course of the home loan.

An adjustable rate refinance mortgage is considered riskier than a fixed rate refinance mortgage because the monthly payments could change depending on market considerations. As an exchange for taking a risk, home owners are rewarded with a lower interest rate that can be below the market interest rates. Often you will find that the higher the frequency of rate adjustments throughout the mortgage’s term, the lower the initial rate is.

With adjustable rate refinance mortgages, after the loan adjusts the new rates will typically be below the interest rates that are offered to new borrowers of 30 year fixed rate loan programs. It is best to have an adjustable rate refinance mortgage when interest rates are expected to remain the same or fall during the duration of the home loan term.

An adjustable rate refinance has three primary benefits:

  • Can provide a boost to finances – Having a mortgage that allows for an initial lower fixed rate period can give homeowners a chance to free up some cash during the initial term of the loan.
  • An adjustable rate refinance mortgage could allow homeowners to qualify for "more house" – Getting an adjustable rate refinance mortgage may allow homeowners to qualify for bigger loan amounts and this means being able to find a more valuable property. There are numerous homeowners with very large mortgages who get one-year mortgages and refinance them annually. The low rate enables them to purchase a more expensive home while paying the lowest mortgage payments possible.
  • An adjustable rate refinance mortgage could be beneficial depending on future plans – If the homeowner knows that they are only going to stay in a home for a short time then there are benefits of an adjustable rate refinance mortgage. The homeowner can enjoy the lower interest and lower payments during the initial period with minimal risk of the interest rate rising.

What affects the Adjustable Rate Refinance Mortgage?

The adjustment rate is determined by a formula that is based on an index; the most commonly used index being the 1-year United States Treasury Bill. All ARMs have a lifetime rate cap or rate ceiling that limits the amount that the interest rate of the loan can go up over the mortgage’s term. A fairly large number of adjustable rate refinance mortgages have a periodic rate ceiling or cap that limits the amount that the interest rate can go up after each adjustment.

An adjustable rate refinance relies on two primary factors:

  • Index - refers to the index that the interest rate of the loan will be tied to once the fixed-rate period expires. The most common indexes are the US Treasury Index, the LIBOR Index and the COFI or the 11th District Cost of Funds Index. The Treasury Index is tied to the US treasury rate and varies along with any increase of decrease as made by the Fed.
  • Margin - refers to the amount above that of the Index which will determine the rate of interest that will be paid when the fixed rate period of the mortgage expires and the adjustment period starts. For example, a five percent margin would mean that the new interest rate will be five percent above the current index rate.

Once the initial fixed rate period has expired, the new interest rate is calculated based on market conditions. This is done by adding a margin to the existing index which is regulated by the third party indices. The margin will be disclosed at the time of the mortgage loan application. Over the course of the loan and as the index figure fluctuates, the interest rate adjusted accordingly.

The increase or decrease of the interest rate will be limited by a cap structure which gives protection from large swings of interest rates. Caps come in two types: there is the annual cap and life-of-the-loan. An annual cap restricts the amount that the interest rate can change in a given year. The life-of-the-loan ceiling limits the minimum and maximum interest rate that can be paid for the life of the mortgage.

Adjustable Rate Refinance Mortgages Options

An adjustable rate refinance has three primary options that you may want to take into consideration. If you have additional questions or do not find the adjustable rate refinance option you were looking for, please contact NationsChoice Mortgage to get more information.

Hybrid Adjustable Rate Refinance Mortgage – A hybrid adjustable rate refinance mortgage is a cross between an ARM and a fixed rate mortgage. The initial period of the mortgage features as a fixed interest rate which is followed an adjustable rate for the remainder of the mortgage term.

Option Adjustable Rate Refinance Mortgage – An option adjustable rate refinance mortgage gives a homeowner a choice of amortization amounts between paying only the interest (interest-only payments) or a minimum payment that is lower than the interest only payment amount. The rate of interest on an option adjustable rate refinance mortgage adjusts monthly and payment is on an annual basis. There is a possibility of negative amortization which can happen when the monthly payments are not able to cover the interest on the mortgage resulting in an increase of the mortgage balance instead of a decrease.

Interest-only Adjustable Rate Refinance Mortgage – An interest-only adjustable rate refinance mortgage is a type of loan that allows a homeowner to make only the interest payments on the loan during the span of the interest only period. The length of this period varies and after the interest only period the mortgage must then amortize so that it can be paid off at the end of its term which means that the monthly payments increase after the interest only period expires.

Adjustable Rate Refinance Mortgage Conclusion

An adjustable rate refinance mortgage is a good option for refinancing a home if the home owner plans to live in the home for a short period of time. This is because there is a possibility that the monthly mortgage payment may change due to factors out of the home owner’s control. The lower interest rate and monthly payment is very appealing for many and can have its benefits. For this reason some borrowers find it to be a better option than the more traditional fixed rate refinance mortgage.

How to get an Adjustable Rate Refinance:

If you have an opportunity to refinance your existing mortgage, it is important to find the best mortgage option based on your individual needs. The process can be time-consuming and stressful especially if you are trying to decide what type of mortgage is right for you and your family. At Nations Choice Mortgage, there is a dedicated and highly-trained team of mortgage professionals who are always ready to answer any questions that you may have regarding which type of mortgage is good for you and which type would be most affordable.

To begin applying for a fixed rate refinance mortgage all you need to do is search rates and you will receive a personalized interest rate quote. You can then choose the type of loan and interest rate which fits your needs best. Your mortgage application can also be completed online using our advanced online mortgage application. If you have questions anytime during the online application process, feel free to contact us and we will provide you with all the information you need.

Instant Mortgage Rate Help

Loan Amount: How much do you want to borrow? Example: 150,000 (You can borrow up to 100% of the purchase price of your home. You will find better interest rates at 95%, 90%, and 80% progressively.)

Property Value: This is the purchase price of your property or your best estimate of the appraised value of the property. Example: 175,000.

Loan Type: Selecting Refinance WITH CASH OUT may increase your rate. If you want some extra cash to pay the closing costs on your new loan, this would NOT be considered receiving extra cash.

Escrow/Impounds: Allows you to pay 1/12 of your annual property taxes and homeowners insurance with your mortgage payment each month. Escrowing your taxes and insurance will lower your points by .25%

Property State: Specify the State where the property is located

Property County: Specify the County where the property is located


Todays Rates: These rates are based on the following criteria..

Instant Mortgage Rates:


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