ARMs present serial refinancers with another chance to save

By Tim Manni

Financially speaking, life's all about making money then learning how to properly save it. Saving money is more important than ever these days with our country still trying to claw its way out of a recession and into a recovery.

Perhaps the number one way a homeowner can save some more of their hard-earned dollars these days is by refinancing their mortgage.

Even if your home isn't a "money pit," there are both routine and non-routine costs that you must put into your property on a consistent basis. Especially in such uncertain times--when homeowners can no longer bank on their homes being an appreciating investment--homeowners should never miss a chance to trim those expenses when the opportunity presents itself.

Today's persistently-low mortgage rates have allowed millions of homeowners to refinance their mortgages. While the old rule of thumb was that refinancing was only worth it if you could cut 2 percent off your current interest rate, many Americans have proved that theory wrong by refinancing multiple times, trimming their interest rate each time, carving savings off their monthly payments in the process.

The majority of homeowners either refinance to lower their interest rate or refinance into a new loan product, say, from an adjustable-rate mortgage to a fixed-rate mortgage.

However, some "serial refinancers" are going against the grain. These borrowers, those who have already refinanced at least once before, are cashing in on additional savings by refinancing from their stable fixed loans to an adjustable-rate loan in order to lock in an even lower interest rate.

HSH.com discusses ARMs on CNBC

HSH.com's VP and resident expert Keith Gumbinger went on CNBC recently to discuss the opportunities adjustable-rate mortgages are currently presenting to eager refinancers.

Adjustable-rate mortgages got a bad rap following the housing crisis, explains Gumbinger, because far too many home buyers who were ill-suited to handle their risks were put into those loans and they subsequently failed.

But as Gumbinger attests, adjustable-rate mortgages are neither evil nor toxic; they just belong in the hands of the right borrower.

The savings can be substantial

When asked why borrowers might consider refinancing into, what some call a risky loan product, Gumbinger explained that, "Given your opportunities, you might find that you could save $20,000, $30,000, $40,000 over the next five or six years."

Currently, only about 7 percent of the mortgage market is opting for adjustable-rate mortgages (when typically that number should be around 10 percent, said Gumbinger). Prior to the housing crisis, that market share was upwards of 30, 40 percent he explained.

How much can an ARM save me?

Let's do a quick comparison to see how much you can save each month by refinancing to an adjustable-rate mortgage as opposed to a fixed-rate mortgage.

Using the latest weekly averages from HSH.com and assuming a loan amount of $150,000, your monthly payment on a conforming 30-year fixed-rate mortgage at 4.58 percent would be $767.17. On a conforming 5/1 ARM at 3.23 percent, your monthly payment would $651.16, a monthly difference of $116.01.

Getting that new rate for free

Just like everything in life, refinancing doesn't come cheap. As is the case with a purchase loan, borrowers are required to pay closing costs when they refinance.

So how are serial refinancers able to afford all these refinances?

Refinancers can work with their lenders to limit or negate closing costs by opting for slightly-above-market interest rates. By adopting this strategy, borrowers lower their rate for little or no cost, which means they can absorb their savings right away.

"That's a no-brainer," said Craig Strent of Apex Home Loans.

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