Refinancing Your Adjustable-Rate Mortgage Before the Rate Resets
An Adjustable-Rate Mortgage (ARM) can be a great way to start with a lower interest rate than a fixed-rate mortgage. But that lower rate doesn’t last forever. After the introductory period—often 5, 7, or 10 years—your interest rate can adjust, sometimes increasing significantly.
If your ARM is nearing its adjustment period or your rate has already started to change, you may be wondering how to refinance into a more stable option. The good news? Refinancing an ARM is a common move for homeowners who want predictability, lower payments, or better loan terms.
This guide will walk you through how ARMs work, why refinancing may be beneficial, the steps involved, and how CapCenter can help you refinance without paying unnecessary closing costs.
Understanding Adjustable-Rate Mortgages
An ARM starts with a fixed-rate period where your interest rate stays the same—usually for the first 3, 5, 7, or 10 years. After that, your rate can change periodically, based on a financial index plus a set margin.
For example, a 5/1 ARM has a fixed rate for 5 years, then adjusts every year. A 7/6 ARM is fixed for 7 years, then adjusts every six months.
The adjustment can work in your favor if rates go down—but it can also raise your monthly payment if rates climb. That unpredictability is why many borrowers choose to refinance into a fixed-rate loan before the adjustment period begins.
Why Refinance an ARM?
1. Lock in a Stable Rate
If interest rates are higher now than when you first got your ARM, your payment could jump at the first adjustment. Refinancing into a fixed-rate mortgage locks in your rate for the remainder of the loan, protecting you from future increases.
2. Reduce Monthly Payments
If current fixed rates are lower than your ARM’s adjusted rate, refinancing could bring your payment down—sometimes significantly.
3. Shorten Your Loan Term
Refinancing can be an opportunity to switch from a 30-year to a 15-year mortgage, which may save you tens of thousands in interest over the life of the loan.
4. Access Home Equity
If you’ve built equity, a cash-out refinance lets you borrow against it for home improvements, debt consolidation, or other financial needs—while also securing a new rate structure.
When to Refinance an ARM
Timing is everything with ARM refinancing. Ideally, you should start the process at least six months before your first rate adjustment. This gives you time to compare options, lock in a rate, and close before your payment changes.
Even if your ARM has already adjusted, refinancing may still make sense—especially if rates have dropped or you want a fixed payment going forward.
The Steps to Refinance an ARM
Refinancing your ARM follows a process similar to getting your original mortgage:
Step 1: Review Your Current Loan Terms
Check your ARM’s fixed period end date, current interest rate, margin, and adjustment caps. Your original loan documents and recent statements will have this information.
Step 2: Evaluate Current Interest Rates
Compare today’s fixed-rate mortgage options with your ARM’s potential adjusted rate. If fixed rates are lower or comparable, refinancing could be beneficial.
Step 3: Check Your Credit and Finances
Your credit score, debt-to-income ratio, and home equity will all affect your refinance options. Improving your credit before applying can help you secure better rates.
Step 4: Choose Your Refinance Goal
Decide whether you want to:
- Lock in a fixed rate
- Lower your monthly payment
- Shorten your loan term
- Take cash out from your equity
Step 5: Get Pre-Approved
Work with a lender to get pre-approved for your refinance. This will give you a clearer picture of the rates and terms you can expect.
Step 6: Apply and Lock Your Rate
Once you’ve chosen your lender and loan type, submit your application and lock in your rate to protect yourself from market fluctuations during the process.
Step 7: Appraisal and Underwriting
Most refinances require an appraisal to confirm your home’s value. The lender’s underwriting team will also review your financial documentation.
Step 8: Close on Your New Loan
After approval, you’ll sign closing documents, pay any required costs (or have them covered by a lender like CapCenter), and your new loan will replace your old ARM.
Refinancing Options for ARM Borrowers
- Fixed-Rate Mortgage Refinance – Converts your ARM to a stable payment for the rest of your term.
- Another ARM – If you expect to move within a few years, refinancing into a new ARM with a fresh fixed period may offer a lower rate than a fixed mortgage.
- Cash-Out Refinance – Lets you access equity while adjusting your loan type.
- Streamline Refinance – For FHA, VA, or USDA loans, certain streamline programs can make refinancing easier and require less documentation.
Potential Drawbacks of Refinancing an ARM
While refinancing can offer stability and savings, there are a few considerations:
- If rates have risen significantly, your new fixed rate might be higher than your current ARM rate during the fixed period.
- If you plan to sell soon, refinancing costs might outweigh the benefits—unless your lender offers Zero Closing Costs, like CapCenter.
- Depending on your credit and equity, you might not qualify for the best rates.
How CapCenter Makes ARM Refinancing Easier
Refinancing is all about running the numbers—and we make that process transparent. At CapCenter, our Zero Closing Costs promise means you can refinance without worrying about paying thousands upfront for lender fees, saving you money from day one.
Here’s how we help:
- No Lender Fees – You avoid the typical costs that can eat into refinance savings.
- Rate Comparisons – We show you side-by-side scenarios for fixed and adjustable options so you can choose confidently.
- Quick Closings – We work efficiently to finalize your refinance before your ARM adjusts.
Common Misconceptions About Refinancing an ARM
Misconception 1: You can only refinance before your ARM adjusts.
You can refinance anytime, though earlier is usually better to avoid payment shocks.
Misconception 2: Refinancing always lowers your rate.
The main goal may be payment stability—sometimes even at a slightly higher rate.
Misconception 3: All lenders offer the same terms.
Rates, fees, and requirements vary, so shopping around matters.
FAQs About ARM Refinancing
Can I refinance an ARM with bad credit?
Yes, though your rate may be higher. Certain programs, like FHA Streamline Refinances, have more flexible credit requirements.
Will I need another appraisal?
Most refinances require one, but some programs may waive it if recent data supports your home’s value.
Can I refinance into another ARM?
Yes—if you expect to move or pay off the loan before the next adjustment, a new ARM could make sense.
Final Thoughts
Refinancing an ARM is about taking control of your mortgage—whether that means locking in a stable rate, lowering your payment, or tapping into your home equity. The key is timing your refinance to avoid rate shocks and choosing the right loan type for your future plans.
With CapCenter’s Zero Closing Costs advantage, you can make the move without worrying about upfront fees—so your decision is based on what’s financially smart, not on what you can afford to pay at the closing table.
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