From Kiplinger · · 1m 30s
ARM Reset Prep: 5 Moves Before Rate Adjustment
Homeowners with adjustable-rate mortgages should prepare for potential payment spikes before their next rate reset.
In brief
Homeowners with adjustable-rate mortgages should prepare for potential payment spikes before their next rate reset. Homeowners with adjustable-rate mortgages should prepare for potential payment spikes before their next rate reset. Originally reported by Kiplinger.
ARM reset timing
Homeowners with adjustable-rate mortgages may face payment spikes when introductory rates expire.
ARM reset date
Most ARMs have fixed-rate periods lasting five to seven years before rate adjustments begin.
Rate adjustment factors
New rates depend on a benchmark index like SOFR and a lender-set margin added together.
Rate caps
Most ARMs have caps limiting how much interest rates can increase at each adjustment.
Refinancing costs
Refinancing into a fixed-rate mortgage may cost 2-5% of the loan amount in closing fees.
Payment comparison
Keeping an ARM with 3% rate costs $307 less monthly than refinancing into a 7.32% fixed-rate mortgage.
Extra payments
Paying down principal before rate adjustment may reduce future payment amounts.
Loan modification
Contacting your mortgage servicer may offer loan modifications to manage payment increases.
Budget preparation
Preparing for $400 monthly payment increases requires $2,400 emergency savings for six months.
Rate reset impact
ARM resets can increase monthly payments by hundreds of dollars or more.
Mortgage recast
Mortgage recasts allow lump-sum principal payments to recalculate monthly payments.
Emergency savings
Putting thousands toward mortgage may reduce emergency funds for unexpected expenses.
The main idea
Homeowners with adjustable-rate mortgages should prepare for potential payment spikes before their next rate reset.
