Check out your ARM : Rooftop Views

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Check out your ARM

If you are one of the 40% of home buyers who used an Adjustable Rate Mortgage to finance your home purchase in the last few years, you may want to check out the terms of your mortgage.

An Adjustable Rate Mortgage is designed to increase the interest rate, and thus the payment, as interest rates increase each year. Most of them are tied to some index or other. CNBC reported last week that over $1 Trillion in mortgages - that's trillion with a T - are scheduled to adjust in 2007. That means several million homeowners will be affected.

Depending on the index your mortgage is tied to, and the amount it can adjust each year, you could be looking at anywhere from a 50% to 100% increase in your house payment in 2007. If you have a second mortgage - generally known as a HELOC or Home Equity Line of Credit - your interest rate has jumped 4.25% in the past year. On a $50,000 loan that payment has increased $200 per month.

What can you do? Depending on the terms of your loan, you may want to consider refinancing to a 30 year fixed mortgage. Rates right now are as low as they have been in six months. You may be able to refinance and have a lower payment. Or you may be able to refinance and keep the payment approximately the same, but not have to worry about a payment increase in 2007.

BE AWARE!! Some ARM's have a pre-payment penalty that can cost you thousands of dollars if they are paid off early. Check your paperwork carefully and if you have questions ask your local mortgage lender or real estate broker.

You owe it to yourself to check out your options. You might just save a bunch of money.