Can you refinance an ARM loan to a fixed-rate mortgage?

Fewer home buyers are choosing an adjustable-rate mortgage in today’s housing market. Slightly more than 8% of borrowers in 2025 chose an ARM, down from 40% in 2005. The top concern many borrowers have with an ARM is that an interest rate increase also increases the mortgage payment, affecting the affordability of the home.

Homeowners who currently have an ARM and want to avoid future increases can refinance into a fixed-rate loan to ensure a predictable monthly loan payment.

Why refinance an ARM loan?

Yes, you can refinance an ARM loan. Refinancing means you replace your current mortgage with a new loan. You get a new interest rate and a new loan term. It also allows you to remove a co-borrower from the loan and get rid of private mortgage insurance if you’ve built enough home equity. 

Adjustable-rate mortgage vs. fixed-rate mortgage

The main difference between an ARM and a fixed-rate mortgage is whether the interest rate can change. A fixed-rate mortgage locks in the interest rate for the life of the loan, so your monthly payment for principal and interest stays the same. 

An ARM usually starts with a fixed interest rate for a specific number of years. Once the initial rate expires, your interest rate will adjust at regular intervals based on market conditions. ARMs often come with a lower payment in the beginning, but you might end up with higher payments down the road.

What is an adjustable-rate mortgage?

An ARM is a mortgage with an interest rate that changes at regular intervals based on market conditions. When you first take out an ARM, your rate is fixed for a time and usually is lower than the rate for a fixed-rate loan. Once that period ends, your rate adjusts, usually once a year. 

Lenders may identify ARMs by those terms. For example, a 7/1 ARM has a fixed rate for 7 years, then the rate adjusts once a year.

ARM rate caps

ARM rate caps limit how much your interest rate can change. These caps protect borrowers from extreme rate hikes and typically fall into three categories:

• Initial adjustment cap. This cap limits how much an interest rate can increase the first time it adjusts after the fixed-rate period ends.
• Subsequent adjustment cap. This cap limits how much the interest rate can increase in subsequent adjustments. 
• Lifetime adjustment cap. This rate cap limits how much your rate can increase overall from the initial rate.

When taking out an ARM makes sense

There are several scenarios where an ARM makes sense. If interest rates are currently high and you plan to refinance before the initial period is up, an ARM could save you money. An ARM also may make sense if you plan to move and sell the home before the fixed introductory rate expires.

It’s a good idea to make sure you can afford the maximum possible payment before committing to an ARM. You may plan to refinance or sell before the initial period is up, but unexpected circumstances could prevent you from doing so. 

What is a fixed-rate mortgage?

A fixed-rate mortgage has an interest that stays the same over the life of the loan. That means your monthly payment for principal and interest will stay the same each month, and your interest rate will never change. If you include property taxes or home insurance in your mortgage payment, those could fluctuate over the years, but the principal and interest payment won’t. 

Fixed-rate formula

Different factors determine the mortgage interest rate for fixed-rate loans.

• Federal Reserve policy: While the Fed doesn’t directly affect interest rates, its responsibility to raise or lower the federal funds rate does. When the Fed raises interest rates to combat inflation, mortgage rates typically go up as well. When the Fed cuts the federal funds rate, mortgage rates usually go down.
• Loan terms: Whether you choose 15- or 30-year loan terms can affect the interest rate you receive. In general, 15-year mortgage terms help you secure a lower interest rate because you’ll be seen as less of a risk to the lender. 
• Credit score: Borrowers with excellent credit receive the lowest interest rates on their mortgages. Having a lower credit score doesn’t necessarily exclude you from taking out a mortgage, but your lender will charge you more in interest to make up for the additional risk. 
• Down payment: Many lenders will let you take out a mortgage with a down payment as low as 3%, but making a larger down payment could help you secure lower interest rates.

When taking out a fixed-rate mortgage makes sense

A fixed-rate mortgage offers a predictable monthly payment over the full life of the loan. Fixed-rate mortgages also are popular when interest rates are low because they let borrowers secure themselves against future increases.

Reasons to consider refinancing your ARM loan

There are several reasons borrowers might want to refinance an ARM. One of the most common reasons is to avoid interest rate increases. Another is to reduce your monthly payment with a rate-and-term refinance. Other borrowers refinance to take advantage of lower interest rates or to borrow their equity with a cash-out refinance. A refinance calculator can estimate your potential savings and help you decide if refinancing makes sense.

How to refinance an ARM loan to a fixed-rate mortgage

Refinancing works by replacing your current loan with a new one that has a fixed interest rate. This process is similar to applying for your original mortgage and typically takes a few weeks to complete.

1. Choose a lender

Start by researching lenders that offer fixed-rate mortgage refinance options, comparing interest rates, fees, and loan terms. You don’t have to refinance with your current lender, so shopping around could help you find the best deal.

2. Fill out your application

Once you’ve chosen a lender, you’ll need to complete a refinance application. This will include information about your current mortgage, employment, income, assets, and debts. The lender uses this information to assess your creditworthiness and loan eligibility.

3. Provide the necessary documentation

You’ll need to submit documents like recent pay stubs, tax returns, W-2s, bank statements, and a mortgage statement. These help the lender verify your income, assets, and financial stability. If you’re removing a co-borrower or doing a cash-out refinance, additional documentation may be required.

4. Lock in your interest rate

Once you’ve submitted your application, you’ll have the option to lock in your new fixed interest rate. Rate locks typically last 30 to 60 days and can protect you from market fluctuations while your loan is processed.

5. Close on your new loan

At closing, you’ll review and sign the final loan documents and pay your closing costs. After the closing is complete, your new fixed-rate mortgage will replace your existing ARM loan.

Requirements for refinancing an ARM 

To refinance an ARM, you’ll need to meet lender requirements.

• Proof of income: You’ll need to show you have enough money coming in to afford the new loan.
• At least 20% equity: Many lenders prefer you have at least 20% equity in your home, though some allow less.
• Low debt-to-income ratio: Having a DTI ratio under 43% shows you have room in your budget to afford the monthly mortgage payment. 
• Good credit: A higher credit score improves your chances of qualifying and securing a competitive interest rate.
• Mortgage seasoning: Most lenders require you to have owned the home and made on-time payments for at least six months before you can refinance.

Your home will need an appraisal

As part of the refinancing process, your lender will order a home appraisal to determine the fair market value of your property. A licensed appraiser will visit your home, assess its condition, compare it to similar properties in the area, and provide a valuation report. This helps the lender confirm that your home is worth enough to support the new loan and ensures you’re not borrowing more than the property is worth. The property appraisal also plays a key role in calculating your loan-to-value ratio, which determines how much home equity you have, your interest rate, and your eligibility for the loan.

The bottom line: Refinancing your adjustable-rate mortgage could make sense 

If you’re nearing the end of your introductory rate or want more predictable monthly payments, you might be considering refinancing your ARM loan. While refinancing will require some additional paperwork and paying closing costs, it can provide long-term financial stability.

If you’re ready to explore your options, you can start the refinance approval process with Rocket Mortgage® to see what works best for your situation.