Adjustable Rate Mortgages- Time Bombs Ticking

Over the last few years, thousands and thousands of homeowners have financed or refinanced their homes with ARM’s, Adjustable Rate Mortgages.

ARM’s are mortgages that are tied in to lower interest rates in the beginning so that many homeowners can afford their monthly payments. As long as interest rates stay even or go lower, the home owner is fine. The danger comes when interest rates start to rise. Monthly payments can go up hundreds of dollars when the interest rate/payment terms come into effect.

That danger is now. Interest rates have been going up as The Federal Reserve has raised rates for the 15th time in the last two years. And, it doesn’t look like rates are going to stop going higher anytime soon. As these mortgages reset to higher rates and payments, many of these ARM homeowners are going to be in a financial bind. Many may even lose their homes.

According to the Mortgage Bankers Association at the end of 2005, some states such as Michigan, Missouri, Tennessee and Alabama have as many as 20% of the ARM homeowners behind by thirty days or more. Foreclosure proceedings usually start when a homeowner is ninety days late. Hopefully, these homeowners will get refinanced before it is too late.

If you have an ARM, you should look at your finances to be sure you will remain solvent in these upcoming times. How high can your monthly house payment go? Will you be able to afford it? Talk to a financial adviser and determine if refinancing to a fixed rate is the best way for you to go. I believe locking in a fixed rate is the safest decision you could make at this moment in time.

There are many mortgage companies that will look to provide refinancing options for you. Unfortunately, many of these companies may be much more stringent in regards to your credit worthiness. That is, it may be much harder to borrow that money now than when you initially purchased your first or second mortgage. You will never know unless you try … and the clock is ticking.