With many Adjustable Rate Mortgages coming due, more and more homes are going into foreclosure as home owners can no longer afford their homes. While Adjustable Rate Mortgages fit the needs of many, they don’t fit the needs of all. What happens when you find out that your ARM is no longer working for you?
First of all, let’s spend a little time talking about why people choose an Adjustable Rate Mortgage. ARMs are a terrific option for people looking for lower interest rates and monthly payments for a short period of time. But when you choose an ARM don’t forget to think long term. When the initial introductory period is over, the rate will be adjusted based on some financial index. You’ll no longer have full control over your monthly payments, and it’s possible you won’t be able to afford your payments.
Adjustable Rate Mortgages work well for people who don’t plan on spending a lot of time in their home, as it puts cash in their pocket for other things like a down payment for the next home, retirement, college savings, vacations, or even just living expenses. But problems sometimes occur when the borrowers remain in their homes for longer than they intended. If you find yourself staying in your home for longer than you intended—whether you’ve decided that you want to stay voluntarily or the housing market is in trouble and you can’t sell your home right now—you don’t have to be a slave to adjustable rates. When the introductory period of your ARM is over, you have options.
The best option is to refinance your home. And if you think you’re going to stay in your home for a while, the best mortgage for you is a fixed rate mortgage. A fixed rate mortgage gives you a set interest rate that’s good over the life of the loan. While refinancing will cost you additional money in closing costs, refinancing your ARM into a fixed rate mortgage could save you tens of thousands of dollars over the course of your loan, particularly if you manage to secure an attractive interest rate.
If you think you may someday want to refinance your Adjustable Rate Mortgage into a Fixed Rate Mortgage, there are some steps you’ll want to take to ensure you get the best rate possible. Like any other loan, the rate offered to you will depend upon your credit rating. Be sure to always pay your bills on time, and don’t max out your credit. If you maintain good credit and always pay your ARM on time, converting it to a Fixed Rate Mortgage should be a snap.
If you would like to avoid adjustments but are only planning on staying in your home for short while longer, talk to your lender about whether a Fixed Rate is right for you. In some cases, it may make more sense to refinance another ARM. Do your homework and be candid with your lender, and it will be easy to determine what choice is right for you.
