Adjustable-rate mortgages, or ARMs, have been used by tens of thousands of homeowners to buy or refinance their homes over the past few years.
ARM mortgages start out with lower interest rates, which makes it easier for many homeowners to make their monthly payments. The home owner is fine as long as interest rates stay the same or go down. When interest rates start to go up, that's when things get risky. When the interest rate and payment terms take effect, the monthly payment can go up by hundreds of dollars.
This threat is now. Since the Federal Reserve raised rates for the 15th time in the last two years, interest rates have been going up. And it doesn't look like rates will stop going up in the near future. As these mortgages reset to higher rates and payments, many of these ARM homeowners will be in a financial bind. Some people could even lose their homes.
At the end of 2005, the Mortgage Bankers Association said that as many as 20% of ARM homeowners in Michigan, Missouri, Tennessee, and Alabama were behind on their payments by thirty days or more. Most of the time, foreclosure starts when a homeowner is ninety days behind on their payments. We hope that these homeowners will be able to refinance their mortgages before it's too late.
If you have an adjustable-rate mortgage (ARM), you should look at your finances to make sure you will be able to pay your bills in the future. How much can your house payment be each month? How much money do you have? Talk to a financial advisor to find out if refinancing to a fixed rate is the best option for you. I think that locking in a fixed rate is the safest thing you could do right now.
There are a lot of mortgage companies that will look for ways to help you refinance. Many of these companies may be much stricter about your credit worthiness, which is a shame. That is, it may be much harder to borrow that money now than when you got your first or second mortgage. You'll never know unless you try, but time is running out.
