Fixed-Rate Refinance: How Refinancing From an ARM to a Fixed Rate Can Work For You

Homeowners with an adjustable-rate mortgage (ARM) might wonder if it’s time to switch to a fixed-rate mortgage (FRM). Fixed-rate refinancing can make sense since most ARMs will inevitably cost more money. 

With interest rates fluctuating and economic uncertainty on the horizon, you may consider a fixed-rate refinance to lock in stability, predictability and greater peace of mind. 

Refinancing from an ARM to a fixed rate can protect you from the effects of rising interest rates and greatly simplify your financial planning.

But how does fixed-rate refinancing work? When does it make sense to lose the ARM and refinance to a fixed rate? How do you know when it’s the right choice for you? 

What is an ARM and how does it work?

Any adjustable-rate mortgage (ARM) will feature an interest rate that changes over time. 

ARMs will almost always start with a fixed-rate period (often 5, 7 or 10 years). The interest rate doesn’t alter or change during this part of the home loan. 

After this initial period, the rate will adjust periodically (usually annually) based on a benchmark interest rate. The Secured Overnight Financing Rate (SOFR) is the most common.

ARMs are appealing because they often have lower initial rates than a mortgage with a fixed rate for the entire term. 

However, the likelihood that interest rates will increase after the initial period could end up straining your finances considerably. This unpredictability can make budgeting challenging, especially for long-term homeowners.

What is a fixed-rate refinance?

A fixed-rate refinance involves replacing your existing mortgage with a new loan with a fixed interest rate for the entire term. 

Unlike ARMs, fixed-rate mortgages ensure that the interest rate and your monthly payments will always remain the same. 

That stability and predictability over the life of the loan can be a benefit.

Fixed-rate refinancing is often chosen by homeowners who want to lock in a low rate to protect themselves from future rate hikes or simplify their financial planning. 

FRMs are also a popular option for those who plan to stay in their homes long-term.

Why refinance from an ARM to a fixed rate?

Let’s summarize the significant advantages of refinancing from an ARM to a fixed-rate mortgage:

1. Stability and predictability: Fixed monthly payments make budgeting easier and eliminate the uncertainty of rate adjustments.
2. Protection from rising rates: If interest rates are expected to increase, locking in a fixed rate can save you money over time.
3. Long-term savings: A fixed-rate mortgage can be more cost-effective if you plan to stay in the home for the foreseeable future.
4. Peace of mind: Knowing your payments won’t change provides financial security and reduces stress.

A fixed-rate refinance can be an excellent choice for homeowners who value stability and want to avoid the risks associated with ARMs.

When does refinancing from an ARM to a fixed rate make sense?

Refinancing from an ARM to a fixed rate is particularly beneficial in the following scenarios:

1. Rising interest rates: If market rates are increasing or expected to rise, locking in a lower fixed rate can protect you from higher payments.
2. End of the fixed-rate period: If your ARM’s initial fixed-rate period is ending, refinancing can help you avoid the uncertainty of rate adjustments.
3. Long-term homeownership: A fixed-rate mortgage can provide long-term savings and stability if you plan to stay in your home for many years.
4. Improved credit score: Has your credit score improved since you took out your ARM? If so, you may qualify for a lower fixed rate.
5. Financial planning: A fixed-rate refinance can simplify your finances if you prefer predictable payments for easier budgeting.

What are the requirements for a fixed-rate refinance?

Several factors related to your current mortgage and financial situation must be in order to qualify for a fixed-rate refinance. 

Existing mortgages must be in good standing—meaning all payments must be current—before a homeowner can apply for a refinance. 

Loans must be “seasoned,” meaning a minimum waiting period (usually six months) must have passed since the original mortgage or a previous refinance. 

Sufficient home equity, typically between 3% and 20% of the home’s market value, is needed but can vary depending on the lender. 

Depending on the lender and loan program, a decent-to-good credit score is also required. Your debt-to-income ratio (DTI) must be within acceptable limits to the lender. 

Borrowers must also have sufficient funds to cover the closing costs of the fixed-rate refinance, though options exist to finance these costs. 

Steps to refinance from an ARM to a fixed rate

Switching from an adjustable-rate mortgage (ARM) to a fixed-rate loan can provide long-term financial stability. 

Let’s outline the key steps in refinancing your ARM to a fixed-rate mortgage:

1. Evaluate your current mortgage: Review your ARM’s terms, including the current rate, adjustment schedule and remaining balance.
2. Check your credit score: Higher credit scores can help secure lower fixed rates.
3. Shop around for lenders: Check out multiple lenders to find the best rate and terms.
4. Gather documentation: Gathering the necessary documents—such as proof of income, tax returns and current mortgage information—can save time.
5. Apply for a refinance: Submit your application, and the lender will review your financial information and property value.
6. Close the loan: Once approved, you’ll sign the new loan agreement and pay any closing costs. Your new fixed-rate mortgage will replace your ARM.

Compass Mortgage has helped hundreds of clients through this process, working toward a smooth and stress-free refinancing experience.

How Compass Mortgage can help you toward a fixed-rate refinance

At Compass Mortgage, we specialize in assisting homeowners to refinance their mortgages to achieve their top financial goals. 

Whether you’re looking to refinance from an ARM to a fixed rate or explore home equity financing options, our team is here to help. 

Here’s what sets Compass Mortgage apart:

• Tailored advice: We’ll explain the pros and cons of fixed-rate refinancing and help you determine if it’s the right choice.
• Competitive rates: Compass Mortgage offers some of the industry’s most competitive rates and terms.
• Personalized service: We tailor our recommendations to align with your financial goals and circumstances.
• Streamlined process: From application to approval, we make refinancing simple and efficient.

With Compass Mortgage, you can refinance with confidence and enjoy the stability of a fixed-rate mortgage.

The bottom line: Is refinancing from an ARM to a FRM right for you?

Refinancing from an ARM to a fixed-rate mortgage loan can provide stability, predictability and long-term savings for thousands of homeowners nationwide. 

You might be looking to protect yourself from rising interest rates, simplify your financial planning or lock in a low rate, meaning that a fixed-rate refinance could be your best solution.

The best way to discover your optimum choice is to talk to the team at Compass Mortgage. Our application process is designed to tell us about your financial goals so that we can recommend the best mortgage option. 

Refinance with Compass Mortgage today. Your path to a more secure financial future starts now.