Wednesday, September 29, 2010

Learn What to Do When Your ARM Goes Up

I have some friends who decided to go with an adjustable rate mortgage, or an ARM, when they financed their home. They sat down with their friends, family, and lenders and compared the financing options on the table. In the end, they decided the advantages of the ARM outweighed the cons.

Fast forward several years. I was talking with these friends the other day, and they have now reached a point in their lives when the ARM isn't the best option for them. Originally, they thought they would only be in the home for a short time before moving into a larger place. Unfortunately, housing prices have dropped in their area, and they need to remain in their house longer than they originally anticipated to get the price they want for the home.

As we chatted, I asked them about the fluctuation in their monthly payment. I wanted to know what a person could do when the ARM goes up. They had two practical bits of advice I would like to pass along.

First, always pay your monthly payment on time. Even if the payment did go up, you want to make sure you don't jeopardize your credit. Otherwise, you may find yourself stuck in the ARM until you pay off your mortgage loan.

Second, look at refinancing. That's what my friends are doing.  As they've gone through this process, they have been relieved that they didn't miss their monthly payments because it would have made it more difficult to get out of the situation.

Refinancing isn't always an option, but there are many benefits you can gain if you need to restructure your mortgage from an adjustable rate to a fixed rate and you have that option.

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