It has been close to four years now since the peak of the housing boom. For many that will mean that their Adjustable Rate Mortgages (ARMs) have recently reset or they will have a reset coming. Additionally, for most borrowers that will mean higher mortgage payments due to rate increases over the past four years.
Anticipate Your Rate Adjustment
To prepare for your new mortgage payment, call your lender to get the exact date of your reset and an approximation of your new payment. Many people get caught off guard when a rate adjustment occurs. This can easily cause a borrower to get behind or even default on their loan. Historically, three and five year periods after record home purchases are rife with defaults for this very reason.
Planning for this rate increase may be tough. The larger your home loan, the greater your mortgage increase. More importantly, for those of you who are just able to make your mortgage payments now anticipating this rate hike can be the difference between keeping and losing your house.
Plan for a Mortgage Payment Increase
There is recourse if you realize that you cannot afford your higher mortgage. The first option is to refinance to a fixed mortgage you can pay. In most areas three years of appreciation should provide you enough equity to refinance to a fixed mortgage at approximately your same monthly payment. If you have savings, you may want to invest them in your home to get your payment down to a manageable level. Remember, even though mortgage rates have increased, they are still at historical lows. Betting on an additional decrease now with an ARM or Option ARM is probably a bad idea.
If you Can’t Refinance, Renegotiate
If you have refinanced recently and still find yourself in a rut, its time to try to renegotiate your payments. It is very important to be proactive in this process because banks do not want to foreclose. If they know you want to pay, but simply cannot right now, they will work with you. If you wait until you get behind, it will be too late.
Try to call at least six months before your rate increase. When you call, explain your situation and ask if there is anything they can do to help you. Banks have a large array of products that can defer payments until you get to a place where you can pay more. Expect to pay a higher rate for these products, but remember it will allow you to keep your home. Avoiding default also keeps your credit intact and avoids a possible bankruptcy filing.
Don’t get caught off guard when your rate increase arrives. It is never fun to see your mortgage payment increase, but its better to see the increase coming than remain in the dark.