When I hear talk of fixing an ARM, or adjustable rate mortgage, I envision a mortgage broker hammering away at a broken loan, then stepping aside for the reality-show style reveal -- the ugly duckling ARM is now a swan of a fixed rate mortgage! While not every ARM is broken or requires fixing, if you have an interest-only or negative-amortization ARM, your payments could go up (even double!) when the loan adjusts. Wash the ARM drama right out of your hair with a simple action plan:
Who ya' gonna call? Your lender! These days, lots of lenders are fixing their current borrowers' soon-to-adjust ARMs just on general principle -- it has begun to dawn on them that a skyrocketing payment makes it pretty likely your home will end up in foreclosure, which costs them money. Don't hesitate to call just because you have little or no equity. Some lenders see that as a good reason to fix your loan voluntarily, because you probably won't be able to refinance with another lender. If you've tried to call your lender before and got nowhere, try again. After April 2009, the stimulus plan will literally pay lenders who help on-time borrowers fix their loans and lower their monthly payments, so you might have a better chance then.
Refi-fo-fum. Don't assume that refinancing your ARM into a fixed rate mortgage is impossible because you're upside down and mortgage money is scarce. Though the headlines blast the bad news that 10 percent of homeowners are upside down, that means that 90 percent of homeowners do have some home equity. So long as you also have decent credit, you might find it easier to qualify for a refi than you think! Get in touch with your mortgage broker and have them refinance your ARM into a fixed-rate loan at today's uber-low interest rates.
Your legal last resort. Upside down and your lender won't help? If you are also late on your mortgage or your original deal violated predatory lending laws, you might be able to nudge your lender into modifying your ARM into a fixed-rate loan. Rather than tackle the task of distinguishing the loan modification consultant heroes from the zeros, hire a reputable attorney with a track record of success at negotiating mortgage mods.
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