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Can You Refinance Your Adjustable Rate Mortgage (ARM) Loan?

Written by Marc Guberti

Marc Guberti is a Certified Personal Finance Counselor who has been a finance freelance writer
for five years. He has covered personal finance, investing, banking, credit cards, business
financing, and other topics.
Marc’s work has appeared in US News & World Report, USA Today, Investor Place, and other
publications. He graduated from Fordham University with a finance degree and resides in
Scarsdale, New York.
When he’s not writing, Marc enjoys spending time with the family and watching movies with
them (mostly from the 1930s and 40s). Marc is an avid runner who aims to run over 100
marathons in his lifetime.

Updated April 1, 2024​

5 min. read​

An adjustable-rate mortgage loan offers an easier path to homeownership than a fixed-rate mortgage. These financial products are more accessible to obtain and start out with lower monthly payments. However, you may want to refinance your mortgage for various reasons, such as to secure a lower interest rate or tap into your home equity. This guide will explore what it takes to refinance an ARM loan, along with the pros and cons.

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What is an Adjustable Rate Mortgage (ARM) Loan?

An adjustable rate mortgage loan is a mortgage product with a variable interest rate. This rate initially starts off lower than the APR for a fixed-rate mortgage. The interest rate can change at any point due to fluctuations in the market. If interest rates drop, you will end up with a lower monthly payment. However, your mortgage payments will go up if interest rates rise over time. The monthly payments are less predictable in the long run, but they are more affordable in the short run.

Understanding the Refinancing Process

The refinancing process involves knowing your goals, comparing lenders, applying, getting your property appraised, and closing. It’s important to know what type of mortgage you want and if you want a cash-out refinance, only want to refinance into a lower fixed rate, or prefer to shorten your loan’s duration so you pay it off sooner.

Once you compare the rates and terms for each loan, you can proceed to apply. You will have to provide basic information like your ID, proof of address, and proof of income. Then, the lender will request an appraisal to determine your home’s current market value. Finally, the closing process will take place, during which you and the lender verify and sign documents.

Can You Refinance an ARM Loan?

You can refinance an ARM loan. Homeowners have many choices in this process. They can refinance into another ARM loan with different terms or opt for a fixed-rate mortgage instead.

Example of ARM Loan Refinancing Scenarios

Assume that a borrower holding onto an ARM mortgage has seen interest rates drop over the past five years, resulting in a lower monthly payment. However, many signs point to higher interest rates in the future. Furthermore, the borrower wants to get out of debt sooner instead of dealing with a mortgage for another 25 years.

The borrower in this example may want to refinance into a 15-year fixed rate. This approach results allows you to lock in the low rate while getting out of debt 10 years sooner. Shortening your mortgage will increase your monthly payments, but it’s feasible for some homeowners. It’s also common to extend the loan’s duration to reduce monthly payments and make them more manageable.

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Reasons to Refinance an ARM Loan

Homeowners have several reasons to refinance an ARM loan. These are some of the common motivations:

  • Lock in a low-rate
  • Reduce the monthly payment
  • Get out of debt sooner with a shorter-term
  • Tap into equity with a cash-out refinance

Advantages and Disadvantages of Refinancing an ARM Loan

These are some of the pros and cons of refinancing an ARM loan.


  • Lock in your interest rate
  • Potentially reduce monthly payments
  • Shorten your loan’s term
  • Tap into your equity
  • A refinance can strengthen your financial outlook


  • Refinancing costs
  • Rates may continue to drop after you switch to a fixed-rate mortgage
  • Cash-out refinances keep you in debt longer
  • A shorter loan term results in higher monthly payments
  • Hard credit check

Important Factors to Consider Before Refinancing an ARM Loan

Before you refinance an ARM loan, make sure you consider these factors.

Market Interest Rates

You will refinance into the new market rate. A fixed-rate mortgage can be a great choice to lock in a solid interest rate before they go up again.

Credit Score Considerations

Lenders have credit score requirements for mortgage refinances. Check to see if you fulfill the requirements before applying for a loan. You will get a hard credit check during this process, which will temporarily reduce your credit score. Make sure you aren’t applying for additional loans or credit cards for a few months.

Remaining Loan Term

Some people can wait out a few more years to pay off their mortgages. However, a refinance may make more sense if you have a lengthy term ahead.

How Much Does Refinancing an ARM Loan Cost?

Refinancing an ARM loan can get expensive. These extra costs can be included in your loan, so you don’t have to pay them upfront. However, these are still extra expenses that you should keep in mind.

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Closing Costs

Closing costs are the processing fees associated with a refinance. These costs can range from 2%-6% of the loan’s total value.

Appraisal Fee

The lender will require an appraisal to determine your property’s current value. Appraisal fees vary based on your location, the property’s size, and other factors. Most appraisals cost a few hundred dollars.

Origination Fee

Lenders charge origination fees to process your application. The total cost ranges from 0.5% to 1% of the loan’s balance. Origination fees are one part of the total closing costs. It’s not an additional fee on top of your closing costs.

What are the Steps Involved in Refinancing an ARM Loan?

You can follow these steps to refinance an ARM loan.

1. Choosing Your Loan and Lender

You will have to compare various lenders before committing to the right one for your refinance. It’s a good idea to compare loans based on their rates, terms, fees, and other details.

When considering refinancing your mortgage, it’s important to work with a reputable and experienced lender. Top Flite Financial understands that every homeowner’s situation is unique. That’s why they evaluate your individual needs and provide you with options that align with your long-term objectives. Whether you’re looking to lower your monthly payments, consolidate debt, or fund a major expense, Top Flite Financial has the expertise to help you achieve your financial goals. In addition, if your credit history is less than perfect, they can still help you find refinancing options as they specialize in helping credit-challenged homeowners. Contact them today to learn more with no obligation.

2. Preparing and Submitting Your Application

Most mortgage lenders let you submit an online application. You will have to provide basic details like your name, address, and Social Security number. Lenders will verify your income and run a hard credit check deeper in the process.

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3. Providing the Necessary Documents

Lenders will request proof of income, proof of address, your legal ID, and additional documentation. Most loan providers list their requirements online, and most requirements overlap between lenders.

4. Locking on Your Rate

You will receive a rate and have to accept the loan’s offer to lock in the percentage. Most mortgage offers are valid for 3-6 months. Rate locks typically last for 1-4 months. These timeframes differ for each lender.

5. Closing on the Loan

During this final step, you and the lender meet to sign documents and agree on the terms and rates. You have up to three business days to back out after closing. Make sure the rate and terms on the closing documents match what you agreed to with the lender.

Conclusion: Refinancing Your ARM Loan – Is It a Smart Move?

Refinancing your ARM loan can be a smart move, but it depends on a few factors. It’s important to know your goal before reaching out to lenders. Switching to a fixed-rate mortgage can help you lock in a low rate and make your monthly payments stable. It’s also possible to tap into equity with a cash-out refinance or get out of debt sooner by shortening the length of the mortgage.

However, a refinance will cost thousands of dollars. Closing costs range from 2%-6% of the loan’s balance. It’s also possible that interest rates continue to decline after you switch to a fixed-rate mortgage. Homeowners should also consider the drawbacks of each refinancing strategy. A cash-out refinance will keep you in debt longer, while a shorter loan term results in higher monthly payments.

The advantages can outweigh the disadvantages, but knowing the available strategies and your financial strength is essential before deciding if an ARM loan refinance is right for you.

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FAQs About ARM Loans

Can ARM loan rates go down?

An ARM loan rate can decrease over time. The Fed may lower rates, or banks may have to reduce their rates if demand decreases.

How to convert ARM to fixed mortgage?

You will have to refinance your ARM mortgage into a fixed-rate mortgage. You can contact mortgage lenders and compare rates to see what you can get.

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