Adjustable rate mortgages fluxuate with the interest rates in the housing market. For a homeowner this can be a bad situation. As your interest rate is jumping, your mortgage payment jumps. You may be able to handle this situation for a while, but what happens when you lose your job, you have a medical emergency or you get divorced? This is a scenario that has caused many people to fall behind on their mortgage payments and into foreclosure.



This is becoming a typical scenario for many individuals with these types of mortgages. In fact foreclosures represent about one percent of all outstanding loans. Many of these individuals are in adjustable rate mortgages and subprime mortgages. These tend to default more often than fixed rate loans. Some lenders fear that these defaults could flood the market with inventory. In the past many foreclosures were the result of a bad economy. Today, there are so many borrowers that have been hit with rising mortgages that they cannot keep up with the payments.

Adjustable rate mortgages are exactly what they sound like. The initial interest rate and monthly payment tends to be lower. After an initial period of time the interest rates are periodically adjusted as the prime rates in the market change. The loan balance will reduce with every payment but your payments may rise significantly and to the point to where it is difficult for you to afford them.

If you are a homeowner with an adjustable rate mortgage, you may consider converting to a fixed rate loan. The loan may be somewhat higher but the interest rates are not rising as rapidly as some of the adjustable rate mortgage rates. Depending on your situation you have the option of refinancing your mortgage to a fixed rate mortgage. The adjustable rate mortgage may have initially attracted you because of the lower interest rate; however, your concern may be in keeping your house and being able to make your payments.

The fixed rate mortgage is attracting many people because of their stability. They have a fixed rate for the life of the loan, they have fixed monthly payments and there is protection against rising interest payments. This means that as long as you are able to make your fixed monthly payment you should have no problem staying out of foreclosure.

It only takes three mixed mortgage payments to send you into foreclosure. If you have only missed one and you can afford to pay it and your current mortgage then you should be okay. Missing a mortgage payment will have a significant impact on your credit history but you will not lose your home. If you see yourself missing two payments then you need to begin communicating with your lender immediately. If your mortgage payment is too high for you to make due to the interest rate they may be able to do a workout on your loan and make your loan more affordable. Many lenders will change the terms of the loan all together and lower the payments with an extended repayment schedule.