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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. (more…)

You cannot go from an adjustable rate to a fixed rate mortgage and lower your payment. The low introductory rate on your ARM was artificially low. The loan officer probably told you that by the time your mortgage adjusts, you can refinance or sell to get out of it. Unfortunately, that payment may be more than you could afford already. Now, you haven’t made any plans to move so you are looking at a refinance and not liking what you see.

Most people have no idea what their mortgage note says. Some do not even keep copies of it. You only focus on your payment. If you feel comfortable paying it, then the mortgage could be a disaster waiting to happen and you would not know it.

Advertisers all over are telling you to get out of your adjustable rate mortgage and refinance into a fixed one. And that could not be a smarter idea right now. You may know your loan is adjustable so you check into a refinance.

When you got your mortgage your interest rate was 5.00% for example. When you inquire about a fixed mortgage rate you find out they are around 6.250%. On a $230,000 mortgage, the difference in payment would be roughly $180 more than you pay now. And you proceed to freak out. (more…)

Advantages and Disadvantages of Adjustable Rate Mortgages Adjustable rate mortgages (ARMs) are home loans with a rate that varies. As interest rates rise and fall in general, rates on adjustable rate mortgages follow. These can be useful loans for getting into a home, but they are also risky. This page covers the basics of adjustable rate mortgages.

Adjustable Rate Mortgage Overview Adjustable rate mortgages are unique because the interest rate on the mortgage adjusts with interest rates in the marketplace. This is important because mortgage payment amounts are determined (in part) by the interest rate on the loan. As the interest rate rises, the monthly payment rises. Likewise, payments fall as interest rates fall.

The rate on your adjustable rate mortgage is determined by some market index. Many adjustable rate mortgages are tied to the LIBOR, Prime rate, Cost of Funds Index or another index.

The index your mortgage uses is a technicality, but it can affect how your payments change. Ask your lender why they’ve offered you an adjustable rate mortgage based on a given index.

Adjustable Rate Mortgage Benefits A main reason to consider adjustable rate mortgages is that you may end up with a lower monthly payment. The bank (usually) rewards you with a lower initial rate because you’re taking the risk that interest rates could rise in the future. Contrast the situation with a fixed rate mortgage, where the bank takes that risk. Consider what happens if rates rise: the bank is stuck loaning you money at a below-market rate when you have a fixed rate mortgage. On the other hand, if rates fall, you’ll simply refinance and get a better rate.

Pitfalls of Adjustable Rate Mortgages (more…)