Adjustable-rate mortgages (ARMs) were common in 2020–2022 as a way to get a lower starting rate. Many of those loans are now approaching their first adjustment. Colorado borrowers with 5/1, 7/1, or 10/1 ARMs need to decide: refinance to fixed now, or ride the adjustment.
How ARM adjustments work
Most ARMs use SOFR or MTA (LIBOR replacements) plus a margin (typically 2.25–3%). If SOFR is 4.5% and your margin is 2.75%, your post-adjustment rate is 7.25% — subject to your annual cap (usually 2%) and lifetime cap (usually 5% above start rate).
Example: 5/1 ARM originated in 2021 at 2.75%. First adjustment in 2026. If the underlying index puts the fully-indexed rate above 5%, the annual cap of 2% limits the first adjustment to 4.75% — still a big jump from 2.75%.
Refinance to fixed
A rate-and-term refi from ARM to fixed produces a stable payment for the remaining life of the loan. Colorado 30-year fixed rates in 2026 are broadly in the 6.25–7% range depending on file, so an ARM currently at 2.75–4% would see a payment increase. But if the ARM's next adjustment lands above the current 30-year fixed rate, the refi wins.
When to keep the ARM
- You plan to sell before the first adjustment
- The next adjustment lands at or below current fixed rates and you'll pay it off within 12–24 more months
- You expect to relocate in the next 1–2 years and don't need long-term rate stability
Colorado-specific note
Front Range and Boulder market borrowers who took 7/1 or 10/1 ARMs at 2020–2021 rates are now the most common ARM-to-fixed refi files. Mountain-resort borrowers on jumbo ARMs are similar — most jumbo ARMs originated 2020–2022 will need a refi decision before their first adjustment.
FAQs
Should I refinance my ARM before it adjusts?
Usually yes if current fixed rates are below your projected ARM adjustment. ARMs adjust based on an index (SOFR, MTA, or LIBOR successor) plus a margin. Get your current note and run the math against today's fixed rates before your first adjustment.
Can I do a rate-and-term refinance from ARM to fixed?
Yes — this is the most common ARM-to-fixed refi. Rate-and-term keeps your balance the same (except for financed closing costs) and just changes the rate and product type.
What if I can't qualify for the fixed-rate refi?
If your income has dropped or credit has fallen since the original ARM, look at streamline options first (FHA Streamline, VA IRRRL) if you have those loan types. Otherwise non-QM programs can bridge the gap.
When would I keep my ARM instead of refinancing?
If you plan to sell before the first adjustment, or if the ARM's rate cap keeps it near or below current fixed rates for the remaining time you'll hold the property.
Related: When to refinance · Refinance Colorado hub · Compare: fixed vs ARM · Rate-and-term refinance