Help to Refinance My ARM
An adjustable-rate mortgage, or ARM, typically offers a lower interest rate for the first few years than a fixed-rate mortgage. This allows a new homeowner to make smaller monthly payments at the beginning of the loan. But after the ARM's interest rate adjusts, the loan payment can grow quickly and the amount may become too large for many homeowners to afford. Fortunately, there are a number of options for homeowners in this situation to receive help. Homeowners should understand what options exist and determine which works best for their needs.
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Check Credit
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Before beginning a refinance process, homeowners should pull a copy of their credit report and check it for inaccuracies. Those finding inaccuracies should follow the credit reporting agency's procedure for making corrections. Homeowners should also pay all bills on time, reduce debt levels and avoid opening new lines of credit. All of these will keep the homeowner's credit score as high as possible, which will make the refinancing process easier. Higher credit scores will also allow the homeowner to get the best loan terms when refinancing the ARM mortgage, including a lower interest rate.
Contact Current Lender
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The holder of the ARM mortgage may be willing to negotiate the loan terms with the homeowner. Homeowners should contact their lending institution to see what options are available. Homeowners should also check their loan documentation for an interest rate lock-in clause. This clause will allow the homeowner to lock their interest rate at the end of the fixed period before the rate starts to adjust. The documentation will state how the interest rate is determined. The rate may be higher or lower than the rate the homeowner is currently paying.
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Refinance Tips
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If the current lender cannot provide assistance, homeowners should contact a number of banks and credit unions to determine what options are available to refinance their mortgage. Homeowners should weigh the pros and cons of continuing with another ARM mortgage or switching to a fixed rate. Adjustable-rate mortgages are best for those who may move in the next few years and sell the home or those who will pay the home off before the rate adjusts. Conversely, those who plan to stay in the home and pay the mortgage for a long period of time may want to go with the fixed-rate loan.
Professional Assistance
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Homeowners may find further assistance by contacting the Department of Housing and Urban Development or a National Foundation for Credit Counseling member agency. These organizations can refer homeowners to counselors to assist with mortgage and other financial problems. Homeowners should be wary of private housing counselors and other debt-solution services not affiliated with HUD or NFCC. While there are a number of reputable service providers, there are also a number of providers only interested in scamming money from troubled homeowners. Organizations such as the Better Business Bureau can help a homeowner to check the legitimacy of the service provider.
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