Surviving Your ARM Reset
A few years ago when interest rates were at all time lows, rate-rate mortgages were popular. Now many of those ARMs are about to reset, and with monthly payments may be on the rise too. Here’s our guide to surviving your ARM reset.
Get informed. Forewarned is forearmed. Use our adjustable-rate mortgage calculator to estimate your new monthly payment. With that information you can review your options.
Re-budget. You may be able to swing the new payment by taking a look at your budget. Make a list of all your monthly expenditures and see where you can cut back. It’s a good idea to plan for future payment increases and take action now to either afford or prevent them.
Refinance. One way you may be able to prevent your payments from rising is to refinance into a fixed-rate mortgage. There may be upfront costs involved – so be sure to plan for those as well.
Sell. Another way to avoid those increased payments is to sell your home. If you are in the unfortunate position of owing more than your house is worth, you may be able to work with the lender to “short sell”, where you sell the house and pay the lender whatever you make. A short sale has a severe negative impact on your credit.
Negotiate with your lender. If you have fallen behind in your payments, call the lender as soon as possible. They may help you by developing a repayment plan, so be prepared to show them a budget and copies of your bank statements and pay stubs. Your lender may agree to give you payment relief for a few months until you get back on your feet; typically your payments will be even higher when you begin to make payments again in order to make up those missed payments. The lender may also agree to modify your loan. This works like a refinance, but without the fees.
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