Refinancing Strategies
When Your Adjustable-Rate Mortgage (ARM) Is Adjusted
Facing the reality of interest-rate adjustments on your adjustable-rate mortgage (ARM)1 can cause various reactions—from concern over your ability to make new payments to a desire to search for alternatives.
The following information can guide you through this adjustment, assisting you in evaluating your options and dealing with your concerns.
Regardless of your situation, the NAWBO Home Financing Program provided by Wells Fargo Home Mortgage to NAWBO members and employees has the financing programs to address the issues on your mind. Home mortgage consultants are available to provide you with additional information and personalized assistance. You can call today at 1-888-568-1906 or visit online to learn more.
What’s Behind the Change?
If you have an ARM, you probably selected it because it offered a lower initial interest rate. This provided you with lower monthly payments than you would get from a fixed-rate mortgage.
However, that low initial rate doesn’t stay that way forever; it’s scheduled to change periodically. When and how often it changes depends on the type of ARM you selected:
- The initial interest rate can remain fixed for the first one to 10 years. After that, it’s adjusted periodically based on financial market conditions and the type of loan you have.
- During the initial fixed-rate period, your monthly payments are lower than those of a fixed-rate loan.
- After the fixed-rate period expires, your loan will adjust every six months or every year, depending again on the ARM product you have.
Consult your loan agreement for details about how the adjustments are determined, the percentage that’s added to determine your new rate, and the maximum amount the rate can increase over the life of the loan.
Considering Your Options
When your ARM is about to adjust, you have several choices:
- Remaining with your existing loan. A higher monthly payment may be troubling. But before you try to lower your payment by refinancing, be sure that you’re considering all the costs and factors involved. Since refinancing typically involves some closing costs, in some cases it might be less costly to accept the payment change and remain with your current loan.
For example, some people select an ARM because they expect to move or refinance before the initial fixed-rate term expires. If you don’t expect to be in your home much longer, compare the costs of refinancing against the monthly payments on your ARM for the amount of time you expect to be in your home. - Refinancing to get a fixed-rate loan. If you’ve determined that refinancing makes financial sense, you might want to consider the advantages of a fixed-rate mortgage. With a fixed-rate loan, you gain:
- Protection from rising interest rates
- The security and predictability of fixed monthly payments for the entire term of the loan
- Faster equity growth because more principal is paid per month
You can choose from a variety of fixed-rate options, with longer terms offering lower monthly payments, and shorter terms providing faster equity growth and lower interest costs.
- Refinance with a new adjustable-rate mortgage. If you think you may want to sell or refinance in a few years, selecting another ARM may be appropriate. You’ll benefit from lower monthly payments during the initial fixed-rate period. A good rule of thumb is to try to match the amount of time that you think you’ll own your home with the ARM’s initial fixed-rate period.
- Select a refinance program that provides the advantages of both fixed- and adjustable-rate loans. Some loan programs enable you to combine the low initial rates of an adjustable-rate mortgage (ARM) with the predictable monthly payments of a fixed-rate loan. These programs allow you to “buy down” the start rate of your loan. Since rate adjustments are limited to a certain maximum, you can enjoy some peace of mind.
If you’d like more information you can receive free home financing information delivered right to your inbox for up-to-date interest rates trends, mortgage news and home sales prices. Plus, you receive a free equity analysis to determine if refinancing is right for you.
Dealing with Concerns
If you’ve fallen behind in your payments or you’re concerned about your ability to make your new payment, don’t despair. Many lenders can work with you to find short-term solutions for paying your overdue amount. Depending on your situation, some lenders may even be able to provide an alternative repayment option. Many lenders also provide programs for those who have experienced financial difficulties, including credit, debt or difficult-to-document income.
Learn More
A home mortgage consultant from the NAWBO Home Financing Program can provide you with personalized consultation to evaluate your options and address your issues. Available to members and employees of NAWBO, the NAWBO Home Financing Program helps you and your immediate family members enjoy easy applications and quick loan decisions right over the phone,2 competitive rates and fees, on-time closings, and convenient online information, account access and payment tools. Plus, receive a $200 closing cost rebate when you close a new mortgage or refinance with Wells Fargo Home Mortgage.3 Call today at 1-888-568-1906 or visit online to learn more.