Ask Bill your personal finance question

Adjustable Rate Mortgage Payment Adjustment

My adjustable rate mortgage payment is about to adjust; what do I need to know?

I have two mortgages set to adjust this year. They are both 5/1 ARM's and interest only. My husband lost his job in February of 2009 and is still unemployed. We are current on both loans and have never been late, but I'm afraid we are not going to be able to pay both mortgages once they adjust. I'm currently trying to get a loan modification on my primary residence with the making home affordable program and is still under review. I'm not sure what I can do with my other property which is currently a rental property. The loan on my second property is $300,000, but is only worth under $200,000, so I can't refinance. What options do I have to save this property? Thanks in Advance, Toni

Read full question
Bill's Answer
(4 Votes) | Find Learn Save

The first step is to review the Mortgage Notes on both of your mortgages. The Note will contain the index and margin on your adjustable rate mortgage. Depending on which index is used to calculate your new payment, your rate and payment will not necessarily go up once the initial adjustment is made. Once you have the name of the index used to calculate your rate/ payment, look it up online; the most commonly used mortgage rate index is the LIBOR and currently the LIBOR indexes are less than 1%. Add your margin (from your note) to the index and you have the rate that will be used to calculate your payment on adjustment. It may very well be lower than your current rate. If that's the case, then the reduction will make your payments more affordable, and it sounds like you will be able to continue to make your mortgage payments on time.

If your mortgage rate and payment are going to adjust upwards, and you'll struggle to continue to make timely monthly mortgage payments, then you should take action now. You are on the right path in seeking help with a modification. Continue to pursue the modification on both your mortgages; you'll have a greater likelihood of success on the mortgage on your primary residence. If you're able to get both mortgage payments modified to an affordable level, great; however, if not, it may be time to look in to a short sale on your investment property (I answered a question on short sales recently. Please go to the following link to read my answer to a fellow reader:

In a short sale, you may be able to sell the investment property at its current market value and the current mortgage holder may release you from any additional liability on the outstanding loan balance (in your case that would be the additional $100,000+ that would not be recovered from the sale of the house).

I hope this information helps you Find. Learn & Save.



Get Mortgage Rates!
(4 Votes)

People also like to Read

Betsalel Cohen

Mortgage programs have different minimum credit score requirements. However, lenders often have stricter rules. It is importa... Read more >>

Daniel Cohen

FHA Loans | FHA Loans have huge benefits, including VERY low down payments and low credit limits. Get FREE info on FHA loans... Read more >>

Betsalel Cohen

Mortgage Basics - Down-payment, Equity, and LTV | Learn about mortgage terms relating to your property's value and how it aff... Read more >>

Betsalel Cohen

Whether you are refinancing or buying a home you will ask yourself if you can afford the mortgage. Learn to prepare and evalu... Read more >>

Betsalel Cohen

Qualify for a Mortgage | You can get qualified for a mortgage and the best rates by preparing yourself. Make sure that your c... Read more >>

Mark Cappel

Applying for a mortgage with bad credit and a spouse isn't as difficult as you may think. Learn the what lenders look for whe... Read more >>

Betsalel Cohen

PMI | If you are looking to buy a house and take a mortgage loan with a low down payment then PMI can...... Read more >>

Brad Stroh

Refinance My Home? If you are asking 'Should I refinance my mortgage?' or 'Is refinancing my home a good?', then check out ... Read more >>


1500 characters remaining