If your ARM ( Adjustable Rate Mortgage) is resetting, you are no doubt feeling the anxiety creep in knowing the fixed portion of your payment will be ending soon. This is quite understandable knowing that once rate reset s your monthly mortgage payment can jump hundreds of dollars, literally overnight.
You may have signed up for an ARM without knowing exactly how they work; the broker may not have explained terms like "Index" and "Margin" and "Libor"... components on which your new interest rate will be determined, no doubt adjusting to a higher rate.
It's quite possible that your interest rate could reset 1 or 2 points higher in which case you would be paying a lot more per month.
Here's a hypothetical but very common scenario...
You originally borrowed $250,000 on a 3 year ARM at 5.5% your monthly payment was $1419 (PITI).
At the end of the fixed period (36 payments) you will owe $239,716. Now you'll need to refinance this balance - if you let the ARM reset it could easily increase tour interest rate by 2 points to 7.5%, which puts your monthly payment at $1673.
This is an increase of $254 per month to get out of that ARM and into a 30 year fixed rate mortgage! No wonder foreclosures are on the rise.
You need to consider refinancing your ARM into a 30 year FHA fixed loan.
The advantage of this program is:
- You don't need perfect credit - No minimum FICO score
- Your credit trend is more important than your FICO score
- Foreclosure and bankruptcy won't disqualify you
- Interest rates can be closer to what an "A " credit borrower would qualify for
- Steady payment over 30 years.
- Can refinance up to 97% of appraised value of the home.
The brutal truth is that an FHA loan makes great sense and may very well be the only loan that will enable you to "keep your home" when faced with a resetting ARM.
