ARMS that have prepayment penalties will add substantially to the cost of refinancing. A $300,000 loan with a 3% prepayment penalty will demand a fee payment of $9,000.00 for early payoff. If your ARM has such a clause, you should consider negotiating your new loan with the same lender and see if you can get that fee waived. Business conditions in the mortgage business right now are in your favor.

The same applies to an ARM with a balloon payment. These are loans that were sold with the express purpose of forcing a refinancing package when the balloon payment becomes due. Before you go looking for a new loan that will keep you out of balloon payment debtor’s prison, talk to your lender and see what alternatives are available. Many times, people with mediocre credit accepted these loans. After a few years of meeting mortgage payments, your credit may make you worthy of a more reasonable ARM, if not a fixed rate loan