Should You Let Go or Hold on to Your ARM?

Physician's Money Digest, February 2007, Volume 14, Issue 2

Kiplinger's

Kiplinger's

That adjustable-rate mortgage (ARM)provided you with extra wiggle roomwhen you first made your big purchase,but now that your time is running out andthe interest on your ARM is about to rise,you may be contemplating your nextmove: Do you keep the loan or do youswitch to a fixed-rate mortgage? Accordingto a recent article in , theanswer to that question depends on howlong you expect to own that piece of realestate. For example, if it is a house that yousee yourself moving out of in a few years,it may be worth paying the higher paymentsfor those years to avoid refinancingcosts and a prepayment penalty for gettingout of your ARM. If it is the office you runyour practice out of, and you hope to ownand maintain it for a while, suggests comparing your current rate andpossible future increases to a fixed-ratemortgage or hybrid ARM with a period ofat least 7 to 10 years. Current rates onloans, while not as low as they were a fewyears ago, are still reasonable and historicallylow. If rates go up, you've locked in ata lower number; if rates go down, youalways have the option to refinance.