Is Your ARM Starting To Ache ?
People who borrowed before 2003 are safest from the mortgage-reset problem because they probably have built up equity that will help them refinance or, at worst, sell without losing money -- unless they are in a stalled real-estate market. But those with no equity are on riskier terrain. You could get into the situation where you can't sell, can't refinance, can't negotiate."
Adjustable Rate Mortgages have been around for decades, but became popular in the housing boom partly because borrowers used them to qualify to buy more house than they otherwise could, thanks to their initial payments being lower than those of fixed-rate loans. A disproportionate number of ARMs now are sliding into foreclosure. About 57% of the foreclosure properties are in some sort of adjustable-rate mortgage.
The Adjustment Blues
"What should I do with my ARM?" is the most common question we get these days. To find the answer, start by pulling out the contract you got at settlement. The mortgage note contains this information and the adjustable rate rider.
To calculate the rate on your loan when it adjusts, you need to know the index your ARM is based on -- such as the one-year Treasury or LIBOR (London Interbank Offered Rate). If you take the current rate on the index, and add the margin, you will get your full rate. The only information your contract won't contain is the latest index rate, but you can call us for that information, or get it from HSH Associates, Financial Publishers.
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Should You Refinance?
If you're planning to sell soon after your adjustment, refinancing may not be worth the cost and headaches. But if you're planning to stay in your home for a while, you'd be wise to lock in a fixed rate now.
Fixed rates are still fairly low -- recently 6.3% on 30-year mortgages -- and they should remain below 6.75% for the rest of the year. With rates for 5/1, 3/1 and one-year ARMs all hovering around 6%, the difference is minuscule. If you can handle the higher monthly payment, you can get a loan you'll never have to worry about again.
If Your Payment Jumps
Here's what to do if you're caught in the trap:
- Move quickly to refinance. If you've got the credit and equity needed to refinance, this is an excellent time for it.
- Act now. It's emotionally difficult to act when you're in a financial hole. You can minimize the damage by acting quickly, plus you'll feel better when you start working on the problem. Start by giving our team a call today to discuss your options.
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