What to Do When Your Mortgage Rate is Adjusted
Change can be nerve-wracking. There’s a reason those home video shows never seem to run out of footage of brides passing out and grooms tossing their cookies at the altar. While the shows would have you think otherwise, there is no change so scary as the impending adjustment of your adjustable rate mortgage (ARM). Though adjustability sounds like a desirable thing, a goal you might work on with your Pilates teacher, when it refers to your mortgage? Not so much.
To be clear, though, a plain old adjustable loan is not the boogeyman. It’s the interest-only or negatively amortizing ones that incite fear in the hearts of homeowners. With an amortized ARM, your interest rate simply adjusts with the market rates, so your rate and payment fluctuate a bit. Most often, amortized ARMs are used for equity lines of credit, not for first mortgages. With an interest-only or neg-am loan, you might have had a low, low payment for years, which might as much as double when it starts to adjust. These loans were intended to be refinanced, but you might not be able to if you owe more on your home than it’s worth. Can’t refi and your mortgage is about to double? That’s a sticky wicket.
I Know the Feeling. Waiting for your mortgage to adjust is like watching one of those old black-and-white film scenes where two locomotives are chugging along at high speed directly toward each other: something bad is about to happen and you know it, but there’s nothing you can do but watch the train wreck. The difference is that instead of a smashed up pair of engines, we’re talking about your money, your house and your credit, so just watching the wreck is enough to send your acid reflux into overdrive. Anxiety, panic, even terror are all normal reactions to an impending mortgage adjustment.
Your Mindset Reset. So you discover that your interest-only ARM is going to reset shortly. Or maybe you go to the mailbox and find a friendly note from your neighborhood lender 'reminding' you of your mortgage’s upcoming adjustment date. Don’t let the resulting distress get you depressed. Instead, be grateful for the wake up call and view it as an opportunity to take steps to fix your broken ARM, before it really starts to hurt!
Your Drama-Free Real Estate Rx. If your adjustment is drawing near, click over to MakingHomeAffordable.com to see if you might qualify for one of the modification or adjustment programs backed by the federal government. If your loan isn’t eligible, try a regular old refi or, if all else fails, a loan modification you get directly from your bank. Don’t take no for an answer. If your lender won’t play ball, consider hiring a loan mod attorney for help. Gear up to take fixing your loan on as a project and don’t procrastinate -- no fainting or cookie-tossing allowed!