Part of the economic problems we’re facing today are tied to the thousands and thousands of homeowners who financed or refinanced their home loans with ARM’s, aka Adjustable Rate Mortgages. ARM’s are mortgages have a low interest rates in the beginning and this causes many new homeowners to borrow more than they can afford when their monthly payments adjust or reset upward. It is a risk because as long as interest rates stay even or go lower, the homeowner is financially fine. The danger comes in when interest rates start to rise or the economy goes bad and the homeowner loses income. Monthly home loan payments can go up hundreds of dollars when the interest rate increases to payment terms come into effect.
With the current credit crunch that dangerous period of time is now. As these subprime mortgages reset to higher rates and thus higher monthly payments, many of these homeowners are in a financial bind. Many may even lose their homes because they can no longer afford payments. Should the homeowner lose income due to job loss the problem becomes more acute. Foreclosure proceedings usually start when a homeowner is ninety days late.
If you have an ARM, you should look at your personal finances to insure that you will remain solvent in these upcoming tough economic times we are facing in this recessionary period. Aks yourself these questions. How high can your monthly home loan payment go? Will you be able to afford it when it resets? Talk to your financial adviser and determine if refinancing to a fixed rate is the best thing for you to do. I believe that locking in a 30 or 15 year fixed rate home loan is the safest choice you can make at this time although everyone’s situation is different.
There are many mortgage and home loan companies that will provide you with refinancing options for your adjustible rate mortgage. Unfortunately, given the credit crunch, many of these companies have become much more stringent in regard to your credit worthiness for a fixed rate home loan. Today, it is much harder for most people to be able to borrow money than it was when they initially purchased their home or took out a second mortgage or home equity line of credit.
Do you need to refinace your home loan to avoid the subprime adjustable rate mortgage trap?