Skip to Content
Two people standing by the sun with their hands together heart shaped over the sunshine

News & Insights Blog

Latest Posts

March 07, 2024

Refinancing from ARM to Fixed: What You Need to Know

Tired of interest rate fluctuations causing surprises in your monthly payment? Refinancing your adjustable-rate mortgage (ARM) to a fixed-rate loan can provide peace of mind and budgeting stability. This guide will walk you through the process, explaining the costs involved and the potential benefits of making the switch.

This blog is for educational purposes only, not an offer of credit or advertisement for current loan terms. It does not provide legal advice. Refer to our loan web pages or consult professional advisors for specific information.

Do you have an adjustable-rate mortgage (ARM) and are considering refinancing to a fixed-rate loan?

Refinancing an ARM loan can be a good idea for borrowers who are looking for more predictable payments.

In this article, we’ll take a look at ARMs vs fixed-rate mortgages, how to refinance your ARM loan to a fixed loan, and considerations before refinancing.

Start your application with MIDFLORIDA Credit Union.

How does an ARM work vs. a fixed-rate mortgage?

ARMs and fixed-rate mortgages are two distinct types of home loans that differ primarily in how the interest rates are structured.

While you may be familiar with how an ARM loan works if it’s how your current mortgage is structured, here’s how an ARM compares to a fixed-rate mortgage.

ARM loan

ARM loans have an initial interest rate that is typically lower than that of a fixed-rate mortgage.

After the initial fixed-rate period, which commonly lasts three, five, or seven years, the interest rate may fluctuate periodically.

For example, a 3/1 ARM has a fixed rate for the first three years, followed by annual adjustments that are tied to a financial index.

ARMs are a great option for borrowers during periods of higher interest rates because the borrower may  benefit from a lower initial rate. Homeowners can then choose to sell their home or refinance before the initial fixed period ends.

Fixed-rate mortgage

A fixed-rate mortgage maintains the same interest rate throughout the entire loan term.

This means the monthly principal and interest payments remain constant, providing predictability and long-term stability for borrowers.

Fixed-rate mortgage terms generally range from 15-30 years.

Unlike ARMs, fixed-rate mortgages do not rely on an index or margin. The interest rate is determined at the beginning of the loan and remains unchanged.

Can you refinance from an ARM to a fixed-rate loan?

Yes, as a qualified borrower, you can refinance your ARM to a fixed-rate mortgage.

Homeowners often choose to refinance their ARM loan before the fixed-rate period ends, so they can continue accessing the benefits of a fixed rate.

To do so, you will apply for a new loan with a fixed interest rate to replace your existing ARM.

How to convert an ARM to a fixed-rate mortgage

Here is a general overview of how the refinance process works.

Review your finances

Are you financially prepared to refinance?

Refinancing involves closing costs and fees, similar to the costs involved when you closed on your initial home loan.

Consider your overall financial health before refinancing, including your credit score and income stability.

Perform some market research

Compare current fixed rates with your ARM rate and investigate how your ARM rate may be influenced by your credit score and length of time before the first rate change.

Reach out to a mortgage lender

It’s never too soon to reach out to a mortgage lender—even if you’re just exploring your refinance options.

By providing your lender with basic information about your refinance scenario, they can offer personalized insights into your loan options.

When you’re ready, you can apply for your new loan.

You will have to meet the lender’s refinance requirements for credit score, debt-to-income (DTI) ratio, equity, and more.

Consider the home’s value

Your lender will likely order an appraisal to confirm the value of your property.

Close on your loan

Once you’ve completed all steps and your loan is approved, you can proceed to the closing process—and your ARM will officially be replaced with a fixed-rate loan.

What are the benefits of switching an ARM to a fixed rate?

Refinancing an ARM to a fixed-rate mortgage can offer borrowers numerous financial benefits.

Consistent monthly payments

Fixed interest rates provide consistent monthly payments over the life of the loan.

Fluctuating ARM rates can make it difficult for borrowers to predict how much they will need to pay in the future.

Predictable monthly payments result in long-term financial stability, which helps borrowers make more accurate financial plans and goals.

Protection against interest rate increases

An ARM loan refinance to a fixed-rate loan ensures that borrowers have a locked-in rate that won’t change.

Depending on your ARM terms, you may have a rate that fluctuates every six months to a year once your initial fixed-rate period ends.

These fluctuations can be stressful for borrowers trying to plan their next financial moves.

Refinancing to a fixed rate puts an end to these fluctuations for the remainder of your loan’s life.

Potential cost savings over the life of the loan

If current fixed mortgage rates are lower than the initial or anticipated future rates of your ARM, the switch can lead to immediate and sustained savings.

Additionally, choosing a shorter, 15-year term can result in significant interest savings over the life of the loan.

Who should refinance their ARM to a fixed-rate loan?

The decision to refinance your adjustable-rate mortgage to a fixed-rate mortgage depends on your unique financial goals and circumstances.

However, the following scenarios may indicate that refinancing could be beneficial:

  • You want to prioritize mortgage payment stability
  • Mortgage rates are low or are currently falling (lock in a low rate for long-term, fixed payments)
  • Your ARM loan is approaching a rate adjustment  and your rate is expected to rise (lock-in rate before rates rise)
  • You plan to stay in your home for an extended period
  • Your financial scenario, including your credit score, has improved since you applied for an ARM loan

If you are in any of these scenarios, refinancing may be a smart solution for locking in a fixed rate and beginning to make predictable monthly mortgage payments.

Considerations before refinancing

The biggest considerations for refinancing are the closing costs and fees associated with your refinance vs. your break-even point.

Your break-even point factors in how long it will take for the potential savings of refinancing to offset the upfront costs.

If you plan to stay in the home beyond the break-even point, refinancing may make sense.

You’ll also need to consider whether you have any prepayment penalties on your existing mortgage.

Refinance your ARM today with MIDFLORIDA

The mortgage specialists at MIDFLORIDA are ready to help you determine whether refinancing from an ARM loan to a fixed-rate loan is right for you at this time.

We’re here to walk you through the process, every step of the way.

Start your application with MIDFLORIDA today to discover your personalized loan options.


Further Reading Recommendations