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?

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Begin by going over all of your home loan documents so that you are prepared for any upcoming resets or other changes to the conditions of your loan. When will your payments increase? By how much? Can you refinance? What kind of penalty would you face for refinancing, if there is any?

You may need to make significant changes in your spending and lifestyle in order to keep your home and maintain your credit in good standing. You may need to consider taking on a second job to help make your payments. Avoid making any major purchases at this time when you are facing financial hardship and the economy is uncertain. Think about selling other assets if you can, such as cars or boats, so that you can use this cash to assist you in meeting your payments.

You should always take the initiative with your home loan lender. It is important that you contact them before the problem becomes overwhelming to you. Should you receive calls or letters from your lender it is imperative that you  respond to them as soon as possible. Do not wait to get too far behind. Lenders are less likely to move quickly into foreclosure if you have been proactive and show that you’re working to make your payments. You will want to speak to the right people. This can be tricky because of the way home loans are resold but be persistent. Ask for the loss mitigation or collections department. It is key for you to be completely honest with them about your situation. Also, don’t make promises to them that you can’t keep even if they pressure you in to accepting unfavorable terms.

You should beware of foreclosure rescue scams and other related rackets. There are a number of scam artists who target people in neighborhoods where foreclosure rates have been high. Their typical approach with troubled homeowners is to promise to help them keep their houses. The trick is that these mortgage loan rescues often come with payments which are out of reach of the average homeowner. This results in the homeowner being defrauded of their home and often still owing the original mortgage amount. Should any company approach you with such an offer make sure that you check them out through the Better Business Bureau as well as your state real estate commission and Attorney General. Do not sign anything without reading it all and get all promises in writing. Ask your attorney or other real estate financial professional to review any paperwork before you sign it. And remember that if it sounds too good to be true it probably is.

Another approach is to contact a nonprofit group that offers free housing advice specific to your area. This is a good way to get more information and financial counseling. They may be able to help you with your options. If you took out a loan between Jan. 1 2005 and July 30, 2007, are current on your loan payments and your mortgage has not yet reset to a higher rate, you may be eligible for a five year rate freeze.

If all else fails, you can always try to negotiate a short sale. If you have missed more than two payments but your home has not yet gone into foreclosure this is the right time for you to find out if you can sell your home for a price that falls short of what you owe the lender on your original home loan. Should your mortgage holder agree to accept the sales price and forgive the rest of your debt, they forgo the pricey foreclosure process and save money. As for you,  you will walk away with only minimal damage to your credit score in most cases.

I hope this article has provided you with some important information on how to avoid home loan foreclosure.

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