their budget can cover that hike. If your budget cannot handle the maximum allowed interest rate hike, an ARM is probably not for you.
Those with existing ARMs who are trying to decide whether to convert to a fixed-rate loan should tally up conversion fees (which vary) and any prepayment penalties and closing costs, and compare the total to the maximum possible increase in monthly payments they’d be subject to if they kept the ARM for the remainder of the time they plan to be in the home. “If you are going to move in one to two years, it does not make sense to convert [to a fixed-rate loan],” says Ed Powell, chief consumer officer and vice president at LendingTree.com, a lending and realty services Website. He explains that converting and paying closing costs — which will be about $2,000 for every $100,000 in mortgage costs — plus any additional conversion charges, would only save you money if you stayed in your home for the long term.