Some people will tell you that ARM stands for adjustable rate mortgage. The truth is that it is called an ARM because that is what you will pay, plus a leg, on an adjustable rate mortgage if you keep the loan for more than 2 years.
Most adjustable rate mortgage holders were lured by lower rates. As many as a third are unaware that their rates and their monthly mortgage payments will increase substantially very soon. Some have already found out the hard way.
Replacing an ARM is not easy. If you have poor credit, it may be just as difficult as surgically replacing your arm. Bet your mortgage broker didn’t tell you that!
What they likely said is that you could save money with the introductory rate while building your credit history, and then refinance before the rate resets. This is one of the most common ploys to get people into loans with higher rates.
Unfortunately, most consumers do not experience rapid credit score increases from a mortgage loan. Credit bureaus generally require that a substantial portion of the loan be paid off before giving you extra credit points. This completely ignores the purchase price or appraised value of the home.
If you are an ARM holder, your best bet is to get out of it soon. Many credit unions are now offering mortgage loans to members that have much better terms. Even some banks are getting into the act to improve their reputation. Whatever you do, get help before your payments go up!
