A farewell to ARMS?

It’s no April Fool’s joke. Hundreds of thousands of ARMs (Adjustable Rate Mortgages) will begin rate adjustments as of April 2009. This means if your mortgage is of the ARM variety, your monthly payments could increase, possibly a considerable amount. If you have an ARM, what are your options?

First, ask yourself these questions about your current ARM:

• How often can the rate adjust?
• How much can it rise per adjustment?
• How much will monthly payments rise at adjustment(s)?
• Is there a limit on the rate of increase over the life of the loan?

If you’re uncomfortable with any of the answers, you have three options to consider:

1. Refinance into a fixed-rate loan. Get out of your ARM and into a fixed-rate mortgage (30-year or shorter in term). This option means you’ll never have to worry about rate adjustments. The downside is, rates could be higher and you’ll have to pay for closing costs (2%-4% of the loan amount). In addition, your current ARM may come with prepayment penalties. Check your contract. Refinancing costs could be recouped if you stay in your house long enough, usually about three to five years.
    
2. Refinance into a new ARM. Here you would switch to another ARM with better terms. This may be a good decision if you plan on selling the house within a couple of years, as the same question of adjustments will arise. You’ll once again have to factor in closing costs and prepayment penalties.
    
3. Remain in your ARM. This means you would accept the adjusted rate. If you’re comfortable with the rate jump (say from 4.125% to 6.125%) and associated increase in monthly payments, you could accept the increase and see what happens to interest rates in the next few years. If you’re going to sell within 2-3 years and miss another rate adjustment, you might want to remain in your current ARM to avoid any penalties or closing costs.

Are you feeling trapped by your ARM? Perhaps you can’t afford the refinancing costs to get into a new loan, yet the new adjusted rate on your current ARM will make your budget even tighter. Your credit union is here to help. Talk to one of our representatives. Our Vantage mortgage professionals can help you with your loan questions or even your budgeting. Don’t hesitate to contact us with any questions, 314.264.5325.

_{* Mortgages offered through Mortgage Solutions, LLC. Mortgage Solutions, LLC, is a wholly owned subsidiary of Vantage Credit Union.}