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If you refinanced your old mortgage or purchased your home with an Adjustable Rate Mortgage, you might wonder what will happen once the introductory period of your loan ends. Many homeowners that financed their homes with these risky variable interest rate mortgages are in for a shock when the mortgage lender adjusts the interest rate and monthly payment. If you are one of these homeowners, here is what you need to know to protect yourself from a mortgage payment crisis.

Many homeowners purchased homes during the recent housing boom that they simply cannot afford. These homebuyers qualified for the loans using interest only or option mortgages because they could not qualify for a traditional mortgage to purchase their dream home. Buying outside of your means is the first sign of trouble when it comes to personal finance. Homeowners in this situation that can afford their monthly mortgage payment during the interest only or option period may find they cannot afford the mortgage payment when this period ends. If you have one of these loans you should review your contract to find out when the interest only or option period expires. This timeframe usually lasts for five years; after this time the mortgage will convert your loan to a standard adjustable rate mortgage amortized for the remaining term of your loan.

What does this mean for you? If your mortgage was a thirty year interest only mortgage with a five year interest only period, the mortgage payment will be based on a 25 year payment schedule at the end of the interest only period. Not a big deal right? It means your monthly payment will be much higher, not simply because the interest rate has gone up, but because you now have less time to pay back the full amount of your loan than if you used a traditional mortgage to finance your home.

The bottom line is that you may not be able to afford the payments once your loan is converted. If you are coming up on the end of your introductory period and do not know what your monthly payment will be, you should contact your lender immediately and ask about the change. If you do not qualify to refinance the mortgage and will not be able to afford the payments, you may need to take on a second job or consider selling your home.

Article Source: Louie Latour, EzineArticles.com

6 Comments for 'Adjustable Rate Mortgage: Understand the Risks of Variable Rate Mortgage Loans'

1.  
   Payday Loans Review
   September 16, 2008 | 3:15 am
    

   Payday Loans Review…

   I couldn’t understand some parts of this article, but I guess I just need to check some more resources regarding this, because it sounds interesting….

2.  
   Home Owners Loans
   September 21, 2008 | 9:56 am
    

   Home Owners Loans…

   Keep ‘em coming :)…

3.  
   Home Owners Insurance Rates
   September 27, 2008 | 11:24 pm
    

   Home Owners Insurance Rates…

   Interesting - because that is the same thing I found out last Thursday….

4.  
   loan payday personal
   October 11, 2008 | 7:27 am
    

   loan payday personal…

   Well spoken. I have to research more on this as it is really vital info….

5.  
   Kerry D
   October 11, 2008 | 8:00 am
    

   Kerry D…

   I can’t believe I missed this one. I’ll be checking some other sites on this….

6.  
   online mortgage
   November 7, 2008 | 11:08 am
    

   online mortgage…

   Wise Bread Forums Finance and Frugality Forum Personal Finance Too much student loan debt?!?…

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