Your ARM is Resetting
2007 will be remembered as the year of the ARM reset. If you are like thousands of homeowners, then your adjustable rate mortgage will reset too. In 2006 approximately $300,000 billion worth of ARMs reset. In 2007 that number will more than trip to $1 trillion according to the Mortgage Bankers Association of America .
This means that your introductory period will reach its end and your interest rate and payment will begin to periodically adjust. So what does this mean for you?
Most importantly it means that your payment will increase. Rates have risen since you signed your last mortgage note. And in some cases your mortgage payment may increase by 30 percent. So if you were paying $1,200 a month before, you may be looking at a monthly payment closer to $1,560. For many borrowers this will come as quite a shock. Many borrowers are not familiar with the details of their ARM. And there are just as many who can not afford a substantial increase in their monthly payment.
So what are your options? Well, the first thing to do is to pull out all of your mortgage documentation. Determine when it is that your particular loan will readjust. Did you have a 1 year, a 2 year, a 3 year or a 5 year ARM? Did you have an option ARM? If you had an option arm then your loan will probably recast 5 years after you signed. In some cases, however, it may be only 3 years. The highest number of loans will reset around September, October and November. So getting on top of this now would be a good idea.
Next you will want to meet with your mortgage broker or retailer. Have them check your credit and explain your options as far as refinancing goes. This will be the route most of us will take. Remember too that even though mortgage rates are higher now, you probably saved thousands of dollars versus your neighbors who got a fixed rate. And actually mortgage rates are still at historic lows despite having risen over the past year or so.
For a few people, refinancing will not be an option. This may be the case if your credit has seriously deteriorated or if your home’s value has dropped precipitously. You still have options. Your first option is to call your lender. You could tell them you are having a hard time making the new payment and you don’t want to lose the house. Then you could ask if they could possibly extend the loan’s initial period one year. The worst case scenario is that they will say no.
Another option is to sell your home. If you can do so without a realtor, you can save a large amount of money that way. There are numerous websites that give free advice on selling a home without a realtor. And some companies like forsalebyowner.com charge only a small fee and provide you with some of the key services of a realtor such as providing the contract and listing your property on the Multiple Listing Service (MLS).
Hopefully you won’t find yourself in this situation. But regardless of what your home is worth or how your credit has changed, it is still a good time to review your current adjustable rate mortgage and come up with a plan of attack for when your reset takes place.
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