5 things to do right now your adjustable rate mortgage is going to adjust soon

5 Things to Do Right Now if Your ARM is Going to Reset Soon

Most of the emails I have been receiving lately have been from folks who have an adjustable rate mortgage that is going to adjust on them within the next few months.  The comments come from people with both subprime and prime loans; and the concern is the same: “I can afford the payments now; I won’t be able to when they change.”

I’ve put together this list of 5 things to do right now if you are in an adjustable rate mortgage so that you can better manage what needs to happen before your rate changes.  I recommend starting this process at least 75 days from your adjustment date; however, if you have credit issues I recommend starting right away – regardless of your reset date.

 1.  Determine your rate adjustment date. Find your loan documents, determine what type of adjustable rate mortgage you have and when it is set to adjust.  If you don’t know how to read your loan documents watch this video on understanding adjustable rate mortgage loan disclosures.  If you can’t locate your mortgage documents you can contact your mortgage company through their customer service number.

2. Determine what your new interest rate and monthly mortgage payment will be.  Here is a post on how to calculate your new mortgage payment after your ARM resets.  You can find the index values here; and the 6-month LIBOR is currently at 5.1325%.  If you need help with this calculation please drop me an email.

3. Determine your credit score.  You can do this by running a credit report at myFICO.com which will give you your scores.  Please note that Blown Mortgage is a myFICO.com affiliate and I will get a small commission if you choose this service through this site.  I have been using myFICO.com for years and have been recommending it well before I received any compensation for doing so.  Please read this entire series on why credit is so important to your ability to get out of your adjustable rate mortgage.

4. Determine your home value.  You can do this in a variety of ways.  The easiest (and least accurate) way is to look up your home on zillow.com.  Another way to do it is to ask any of your friends in real estate to run a property profile search through their title company.  This will get you good information.  If you know any Realtors you can contact them and ask them if they would be willing to provide a broker price comparison for your house.  This is probably the best information.

5.  Pull together your income, asset and credit information.  You’ll want to consider refinancing options if your rate is going to adjust and the best way to begin that process is to have everything together before you start talking to people.  You’ll want to get your documentation together first and I’ll go in to that in a future post.  In addition read this post here on the refinance process as a primer.

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Comments on this entry are closed.

  • Horace October 3, 2007, 10:24 am

    6. If all else fails, declare bankruptcy and start renting.

  • Sniglet October 3, 2007, 10:43 am

    If your mortgage is worth more than the value of your home is there any reason to keep making payments, provided the lender can’t pursue any other assets than your residence upon default? Even if you had the money, and earnings, to keep making mortgage payments, it just not make any sense to keep sinking money into a dead asset (i.e. if the house is worth less than the mortgage).

    A black mark on your credit report is a small price to pay for getting out from under the stanglehold of a mortgage for a depreciating asset.

    Of course, one would have to confirm with a lawyer that your particular mortgage agreement (and relevant state laws) prevented the lender from pursuing recourse against your income or assets upon default. But provided there were no other penalties. people should just turn the keys over to the bank and walk away.

  • theMortgageBrat October 3, 2007, 11:39 am

    For those of you who are not sure about their reset timeframe, remember, understanding how your ARM works is simple as long as you know a couple of things. First, ARM products are fixed for a certain period of time ? for as little as one month to as long as ten years ? and then adjust (or reset) based on certain criteria written into your note and attached as a rider to your mortgage.

    If your not sure when your ARM is going to reset, I would advise taking out the copy of your note and mortgage. Once you them out, take a look at following determinant factors:

    1. when your first adjustment will be;
    2. the adjustment period for subsequent adjustments;
    3. the caps on the adjustments (initial, annual, and lifetime);
    4. the margin; and
    5. the index.

    If you need more information check out the following post on our blog.

    http://www.themortgagebrat.com/?p=197

  • RIchard Geller November 25, 2007, 12:54 pm

    another awesome post. I just blogged about this post, thanks Morgan. I have a lot of readers who can’t get another loan for various reasons but your info is spot on.

    –Richard

  • MortgageWreckage January 8, 2008, 11:47 am

    I’m in this very situation and have been told, upon trying to refinance, that because I have a 100% financed loan and the house has depreciated in value, that I can’t refinance. Is there any recourse?

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