Preparing for refinancing out of an ARM

A vast majority of home loans established between 2002 and 2006 were some type of adjustable rate mortgage with limited fixed rate period of between 2 and 5 years. Too many borrowers wait until the notice arrives indicating the increase in payment which is substantial in most cases. What should be done to better prepare for this?

The first thing you should do is identify exactly when this will occur. This may require pulling out the loan package you signed to verify the information. Listed in the “Adjustable Rate Rider” you will find this information.

In many states a prepayment penalty can accompany an adjustable mortgage. You will need to locate this information as well. It should be found in a “Prepayment Penalty Rider”.

Now that you know when you want to refinance it is time to assess the credit profile and make adjustments as necessary to insure that you will qualify for the best rate and terms.

1) You should determine what score you have now and what that will qualify you for.

2) Pay down necessary balances to achieve max scores.

3) Determine what type of loan you will be shopping for. Knowing whether your goals are short term or long term will significantly affect this decision.

At a time where values have pulled back some borrowers will find that this method will be the difference in whether or not they can qualify for the refinance at all. High loan - value ratios require better credit scores. it is important that all homeowners take these steps top insure their best possible rate and terms.

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