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So You Have an Adjustable-Rate Mortgage. Now What?
Posted By beth On April 13, 2007 @ 12:26 AM In Finance and Economy,Finance, Economy & Government Issues | Comments Disabled
RISMEDIA, April 13, 2007-With problems in the mortgage lending sector dominating the news, homeowners who have an adjustable-rate mortgage (ARM) may be wondering what, if anything, they should do.
"April is Financial Literacy Month- good time to reevaluate your financial situation and plan ahead," says Susie Irvine, president and chief executive officer of the American Financial Services Association Education Foundation (AFSAEF). "Think carefully about your ability to handle monthly mortgage payments in the future-and make adjustments, if necessary."
AFSAEF lists these recommendations for all borrowers with ARMs:
- Make note of the date your initial interest rate adjusts, or "resets," since your monthly payment may go up substantially. You can find the reset date on your monthly statement or by reviewing your loan contract.
- Be familiar with other terms and conditions of your loan, including what type of ARM you have and if there is a fee for paying off the loan early (a "prepayment penalty"). Contact your lender if you have any questions.
- Estimate the "fully indexed rate." An ARM's interest rate is tied to any one of a variety of indexes, most of which are published in the business or real estate sections of major newspapers. Check your mortgage documents to find out the index used by your lender, as well as the lender's margin. An index fluctuates over time, but by adding its most current value to the margin, you can get a ballpark estimate of your fully indexed rate.
- Monitor home sales in your neighborhood. This will allow you to keep track of your own home's value and whether you are building or losing equity.
- If you plan to refinance before the reset date, don't wait until the last minute. Lenders need time to prepare the paperwork, check references and schedule the closing. Ideally, the refinancing process should begin two to three months prior to the reset date of the existing loan.
For borrowers who are experiencing difficulty:
- Contact your lender as soon as possible. The sooner you act, the more likely you are to have a positive outcome.
- Find out your options. These may include forbearance (when the lender postpones foreclosure to give the borrower more time to make payments), mortgage modification programs and help with selling your home before foreclosure occurs.
- Consider refinancing if it puts you in a better position than you are now. This involves evaluating all costs to refinance, including whether you'll have to pay a prepayment penalty.
- Contact an approved housing counseling agency. For a list of agencies approved by the U.S. Department of Housing and Urban Development, visit http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm. Another source of help is the Homeownership Preservation Foundation (http://www.995HOPE.org), which has counselors from HUD-certified agencies and sponsors a toll-free hotline (888-995-HOPE) dedicated to preventing foreclosures.
- Watch out for scams. Be leery of "foreclosure specialists" who offer to solve your problems by paying off your mortgage or providing other services for a fee.
- Stay in your home for the time being. You may not qualify for assistance if you abandon your property.
For more information, visit http://www.afsaef.org .
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