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Don’t Wait for Trouble: Get Your ARMs Around the Terms of Your Mortgage

(ARA) – Are you among the millions of American homeowners who financed a home with an adjustable rate mortgage (ARM) loan? ARM loans account for about 24 percent of all mortgage loans in America. But these types of loans were not the best decision for every homeowner.

Typically, ARM loans offer a lower fixed rate in the early stages of the loan, and then adjust or ‘reset’ to a rate in line with current market conditions. This happens after a period of time agreed to by the homeowner at the time the loan is made — usually one, two, three, five or seven years. These loans may be a great choice for you if you expect to move after only a few years in the home, or expect your income to climb significantly before the loan readjusts.

However, if homeowners decide not to leave their homes, their incomes don’t increase as much as expected, or they have large, unexpected expenses come up, they may find that they can’t manage their higher mortgage payment. It is easy for many ARM homeowners to forget that their mortgage will readjust. And due to the record rate of ARM loans made over the past few years, many Americans may be surprised by this adjustment in the very near future.

Thousands of homeowners are concerned about their ARM loans, and are turning to their lenders or third-party nonprofit organizations such as the Homeownership Preservation Foundation for help.

So if you have an ARM mortgage, what can you expect? And what can you do to make sure your payments stay affordable? Colleen Hernandez, president and executive director of the Homeownership Preservation Foundation, offers the following advice:

  • Find your mortgage contract. Your contract should clearly spell out the terms under which your loan will adjust, and when to expect that adjustment.
  • Avoid being surprised. Lenders must inform you before your rates adjust and your payments change, but this may not give you enough time to adjust your personal budget to meet the higher payment. Ask your lender the details of when the loan will adjust and how much more you will be paying per month. ‘Being prepared well in advance for that higher payment increases the options available to you, and may make the difference between saving your home and losing it,’ says Hernandez.
  • Look at your budget. Once you learn how much your payment will adjust, take a hard look at your entire financial picture. Can you afford this payment easily? Has your situation changed to make it close to impossible for you to avoid missing payments?
  • Work with your lender. If you find that your new payment is more than you can or want to handle, or even if you have already missed some payments, you can work with your lender to determine what your options are. ‘Despite myths to the contrary, it is in your lender’s best interest to keep you in your home,’ advises Hernandez. ‘Your lender may be able to help you refinance your loan, offer a manageable repayment plan or one-time grant, or take other steps to help you continue to make your payments. Be prepared to share the details of your financial situation in an honest, straightforward way. The more your lender knows about your budget, the more options he or she can suggest to help you stay in your home.’
  • Get counseling. If you are unable or unwilling to work with your lender, third-party foreclosure prevention counseling can help you create a plan to help resolve your financial problems. Look for a nonprofit counseling agency that offers all of their services at no cost — not just a one-time free consultation. For example, the Homeownership Preservation Foundation offers free, HUD-certified foreclosure prevention counseling toll-free at (888) 995-HOPE or online at www.995HOPE.org

The bottom line? Know when your ARM is going to reset as early as possible and plan accordingly. The earlier you prepare, the more options are available to you, and the easier it will be to stay in your home.

Courtesy of ARA Content