Compare current ARM refinance rates

When comparing mortgage offers, both the APR and the interest rate matter. The APR, or annual percentage rate, represents the total cost of the loan, including the interest rate and all fees and points. The interest rate is the amount of interest the lender charges you for the loan, not including any of the other costs.

Here’s what’s often included in the APR:

• Interest rate: This is simply the percentage rate of interest charged for the mortgage.
• Points: A point is an upfront fee you might choose to pay to lower your interest rate. Each point, also known as a discount point, costs 1 percent of the mortgage amount. One point on a $300,000 mortgage, for example, would cost you $3,000 upfront.
• Origination fee: This is a fee — one of many closing costs — many lenders charge for creating or initiating your loan.
• Mortgage broker fees: If you’re working with a mortgage broker on your loan, you won’t pay them directly; rather, they charge the lender for their services. The lender then passes the cost onto you in the APR on your loan.

Bankrate’s mortgage rates include national rate and APR averages; Bankrate Monitor (BRM) National Index rate averages; and “top offers”:

• National rate and APR averages: Displayed as daily and weekly averages, these rates and APRs are primarily collected from the 5 largest banks and thrifts across hundreds of markets in the U.S.
• Bankrate Monitor (BRM) National Index rate averages: Reported weekly, this long-standing survey collects rates from banks and thrifts across hundreds of markets in the U.S.
• “Top offers”: Displayed daily and weekly, these are an average of the rates listed first on our rate tables as advertised by our partners. The averages shown are based on the loan type and term selected.

You can compare national average mortgage rates to top offers to see how much you could save when shopping on Bankrate.

Learn more about how we collect, display and report mortgage rates.

The most common types of ARMs are also known as hybrid ARMs. These have initial fixed-rate periods followed by a floating rate for the remainder of the loan, such as:

• 3/1 ARM or 3/6 ARM: A fixed interest rate for the first three years
• 5/1 ARM or 5/6 ARM: A fixed interest rate for the first five years
• 7/1 ARM or 7/6 ARM: A fixed interest rate for the first seven years
• 10/1 ARM or 10/6 ARM: A fixed interest rate for the first 10 years

Usually, 5/1 ARMs have the lowest interest rate of the bunch. For those who think they’ll refinance or sell within five years, this could be a cost-effective mortgage option.

Of course, it’s also a gamble. If your income or credit situation changes for the worse, you might not be able to refinance. If you can refinance, you might end up with a higher rate than if you would have gotten a fixed-rate loan in the first place.

The requirements vary depending on the lender and whether you intend to refinance an ARM to another ARM or to a fixed-rate loan, as well as the type of loan you’d like to get. In general, you’ll need to meet the lender’s minimum credit score and equity requirements.

In contrast to a fixed-rate loan, the interest rate on an adjustable-rate mortgage (ARM) changes over time. For a 7/1 ARM, for instance, the introductory rate stays the same for seven years, after which the rate adjusts annually. As the interest rate changes, so will your monthly payment. If you’re thinking about an ARM refi, be prepared for these payment swings.

Similar to a fixed-rate mortgage refi, you’ll want to shop around and make sure you’re getting the best possible deal on refinance ARM rates. You’ll need to verify your financial profile with your lender and will eventually have to sign a mountain of documents at closing.

Most ARMs have a rate cap, which limits how much your interest rate can go up. There are two types of caps:

• Period adjustment cap: How much your rate can go up or down within an adjustment period
• Lifetime cap: Limits rate increase throughout the lifetime of the loan (by law ARMs must have a lifetime cap)

Keep in mind that a drop in interest rates doesn’t mean your monthly payments will go down (or up) right away. Some lenders may hold on to some or all of the rate decline and move it over to the next adjustment period — referred to as a carryover.

For example, if your rate cap is 1 percentage point and interest rates went up by 2 percent, your lender can hold onto the “extra” 1 percent and increase your monthly payment in the future even if the index rate hasn’t gone up.