LendingTree.com Shares 5 Questions to Ask Before Refinancing an Adjustable Rate Mortgage

Released  January 23, 2007
By Megan Greuling

CHARLOTTE, N.C., January 23, 2007 – Approximately $1 trillion worth of adjustable rate mortgages (ARM) are scheduled for a payment reset in 2007*. Many homeowners are likely considering refinancing their mortgage to avoid any chance of an increased monthly payment. With fixed rate mortgages once again relatively low, there are many attractive options for borrowers.

Before refinancing your adjustable rate mortgage, consider answering the following questions brought to you by LendingTree.com.

1) What index is used to set the interest rate on your loan? An index is a published interest rate based on the returns of investments such as U.S. Treasury securities. The rates for these investments change in response to market conditions, so an index tends to track changes in U.S. or world interest rates. There are many indices for which loans can be tied too so it’s important to know what index is used to determine the interest rate on your particular loan. Look up the history of this index and learn how often it goes up or down. If your loan is scheduled to reset in the near future, knowing the index fluctuations will give you a good idea of what your interest rate will be after it adjusts.

2) How often will the interest rate adjust and how much will it adjust by? It is important to know the schedule your loan follows. Will your rate adjust annually, bi-annually, monthly? You should also be aware of the rate change – whether up or down – for each adjustment. These interest rate indicators will help give you an idea of your monthly payments when the time comes for an adjustment.

3) Can you afford the adjusted payments? When you discover what index your loan is tied too, then the adjustment schedule and rate changes, you will then have a better idea of what your monthly loan payment will be after the loan resets. An important question will be to ask yourself, will you be able to afford your mortgage if a severe adjustment happens to your rate?

4) What’s your breakeven point? Knowing how long you will be in your house is an important factor when deciding whether or not to refinance an ARM. If you will be moving prior to the breakeven point, it may not make sense to pay the costs and closing fees related to obtaining a new loan. But if you are going to remain in your home for many months to come, maybe refinancing makes the best financial sense. Ask your lender to help you determine your breakeven point. Also, check out this LendingTree.com breakeven calculator to learn more.

5) Is there a pre-payment penalty on your loan? Some loans carry a pre-payment penalty if you refinance or pay off the remaining balance prior to the predetermined schedule. Ask your lender in advance of refinancing whether or not you have a pre-payment penalty.

For more information about refinancing, please visit the LendingTree Smart Borrower Center.

(*National Association of REALTORS®)

About LendingTree, LLC

LendingTree, LLC is the nation’s number one online lending exchange, providing a marketplace that connects consumers with multiple lenders that compete for their business. Since inception, LendingTree has facilitated more than 20 million loan requests and $152 billion in closed loan transactions. LendingTree provides access to mortgages and refinance loans, home equity loans/lines of credit, auto loans, personal loans, and credit cards via www.lendingtree.com and 800-555-TREE.

Launched in 1998 with headquarters in Charlotte, North Carolina, LendingTree, LLC is part of IAC Financial Services and Real Estate, an operating company of IAC (NASDAQ: IACI), which also owns or operates LendingTree Loans sm, LendingTree Settlement Services, LLC, GetSmart®, RealEstate.comsm, Domania®, and iNest Realty, Inc.