[Political Junkie Too]

The customer can always refinance their mortgage when interest rates drop, but the bank doesn’t have that same option if interest rates rise.

Unless the customer took out an ARM.

In my case, I took out a special relocation ARM that was 5/15 @ 2%. That's a five-year fixed rate at 2% and then adjustable each year for the next 10 years.

When the five years was up, the loan adjusted upwards by 2% (the maximum allowed per year). I was able to do a loan modification to convert to a 10-year fixed rate at 2.625% in March of 2020 (the beginning of COVID-19).

Today, the rates are much higher than they were when most mortgages were taken out so the customer doesn't really have the option to refinance to a reduced rate. They may try to convert an ARM to a fixed rate to stop the growth, but they will still be locking in a much higher rate than a conventional loan would have charged them if they weren't attracted to the lower introductory rates of the ARMs.

-PJ

[Alberta's Child]

What your posted is true, but what you’re describing isn’t a “refinancing” in the context of my post. A 5-year ARM is a five-year loan, even if the amortization is for 30 years. At the end of the five years the rate is reset for the next term.

A true “refinancing” is when the customer pays off the loan and replaces it with a new one before the term of the loan (30-year fixed rate, 5-year ARM, etc.) expires.