If you are one of the millions of homeowners whose adjustable rate mortgages are about to be adjusted you may have a problem. Many of those adjustments are going to make your payment unaffordable. If that is the case take action now to avoid as much pain as possible.

Adjustable rate mortgages are getting a bad name and they are really not a bad deal. The problems with adjustable rate loans were in the trick loans which took something good and ruined it. A traditional adjustable rate loan would be amortized over 30 years and adjusted every 1-7 years depending on the loan. During this period you would have a reduced interest rate which would be adjusted by a standard index at the appointed time. You would pay both principle and interest and the amount of your loan would gradually be reduced. If you had taken out a 5 year adjustable rate loan in 2005, when your loan adjusted this year the interest rate would have gone down and it would be recalculated on a lower principle with the end result being a much lower payment!

So what happened? Mortgage companies began offering loans with a “twist”. These loans were made with the belief that property values would continue to increase, and when they didn't there was trouble! These “twists” were ideas like interest only loans, loans that allowed the homeowner to chose how much they wanted to pay with the difference added to the principle, no documentation loans (liar loans as they are now called) and a host of other bad ideas. These are the ones that will be the problems soon!

What should you do if you're in the position that you will no longer be able to pay? Start with your lender and ask for a modification, if that doesn't work consult with a Real Estate Professional. Many agents are now very well trained and can guide you through the process. Make sure they have the certification to help you, the best are CDPE designated agents; most of ours are. Prepare for the problem before it becomes a problem is the best advice I can offer you!