Preventing ARM Adjustment Shock

By Karen Lawson
LoanPage.com Columnist

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You've enjoyed low mortgage payments for the past couple of years, and your lender has just notified you that your interest rate is adjusting. Your payment could potentially increase by as much as 35%. Ouch! What should you do? Here are some tips for understanding your mortgage terms, and how to approach mortgage lenders for assistance.

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Mortgage Payments and Your Finances

Your home is a tangible asset. As you build equity, you may be able to borrow funds for home improvement projects, starting a business or other purposes. When you bought your home, you may not have paid close attention to your new home loan terms. Now you face significant adjustments in your interest rate and your monthly payments. Your lender and /or community service agencies may provide help if you have trouble understanding your mortgage documents. If you find that your payments may increase to more than you can pay, you can ask your lender for assistance. Here are some options:
  • » Look into refinancing your mortgage. Your lender may all you to refinance your mortgage to another ARM loan or affordable fixed rate loan. It's important to consider prepayment clauses on your existing loan.
  • » Request modification of your loan terms: If your ARM adjustments are creating financial hardship, your lender may be able to modify the terms of your loan. Typically, modifications are made on a case-by-case basis and are approved based on documented financial hardship.
If you find that you can no longer afford your home, it's important to work with your lender. They may be able to extend a period of forbearance, or if your home is worth less than you owe on your mortgage, they may approve a short sale and avoid foreclosure proceedings.

About the Author
Karen Lawson is a freelance writer with extensive experience in mortgage banking. She holds BA and MA degrees in English from the University of Nevada, Reno.

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