Given the rise in short-term interest rates last year, some homeowners with adjustable rate mortgages (ARMs) may be facing "payment shock." This occurs when loans reset to a new interest rate that is higher than the old rate and the monthly payment increases — sometimes significantly. Facing the reality of interest-rate adjustments on your ARM can cause various reactions — from concern over your ability to make new payments to a desire to search for alternatives.

Regardless of your situation, The AICPA-Sponsored Home Mortgage Program from Wells Fargo Home Mortgage has the home financing programs to address the issues on your mind. Home mortgage consultants are available to provide you with additional information and personalized assistance. Visit online or call 1-800-CPA-1210 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 lower initial rate increased your borrowing power and 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. Consult your loan agreement for details about how the adjustments are determined, the percentage that's applied 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 loan 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 offers 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.

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 offer an alternative repayment option. Many lenders also offer programs for those who have experienced financial difficulties, including credit, debt or difficult-to-document income.

Learn More

A home mortgage consultant from The AICPA-Sponsored Home Mortgage Program can provide you with personalized consultation to evaluate your options.

For more information on how the AICPA-Sponsored Home Mortgage Program can help you with your home financing needs, call 1-800-CPA-1210 or visit us online for more information. Be sure to ask about the complimentary CPA Getaway.1 

¹ Transportation not included with the getaway. Getaway promotion is administered by BI, which is not affiliated with Wells Fargo Home Mortgage. Promotions valid for new purchase or refinance mortgage loan applications taken on or after August 1, 2006 and closed through the AICPA-Sponsored Home Mortgage Program. Promotions cannot be combined with any other programs or promotions. Promotions do not apply to assumption or modification loans, loans originated through brokers, joint ventures or other third parties, home equity loans or home equity lines of credit. Wells Fargo Home Mortgage reserves the right to change or end the promotions at any time without notice. Contact your mortgage consultant for additional details, terms and conditions. The benefits of the AICPA-Sponsored Home Mortgage Program cannot be combined with any other program or promotion. Information is accurate as of date of printing and is subject to change without notice.

Wells Fargo Home Mortgage is a division of Wells Fargo Bank, N.A. © 2007 Wells Fargo Bank, N.A. All rights reserved. #48176 5/07 - 8/07  Equal Housing Lender.