Should You Refinance an ARM Loan?

An ARM is a type of loan with a low interest rate that changes once the adjustment period ends. Shutterstock

If you have an adjustable-rate mortgage (ARM) that’s approaching the end of its term, you might be considering refinancing. Your interest and, consequently, monthly payment may increase depending on the economy, and you might be nervous about how your payment will be adjusted.

An ARM can be beneficial; it will give you a low interest rate at the beginning of a loan. But what are the positives and negatives of an ARM, and how do you refinance them when the higher interest hits?

How an ARM Works

An ARM is a type of loan with a low interest rate that changes once the adjustment period ends. They have a fixed rate at the beginning of the loan. Typically, the rate would be fixed for five, seven, or 10 years. Your interest rate remains the same during this time, so your payments remain the same.