I love talking with clients on Saturday mornings. It is that rare day when most of are out of our business mode, in our jeans, and hanging out anticipating those 2 whole days of delicious weekend freedom.

Myself included. But once a month, I call my "hard to contact" Internet leads, just to make certain no stone goes unturned, and no Internet lead is left behind. 

It is on these mornings, when everybody feels a lot looser, that I often get mortgage CONFESSIONS.

Last Saturday, just as my phone conversation with a lovely lady was beginning to warm up, a voice in the background (obviously her husband) boomed out "NO GOOFY LOANS".  

Clearly mortified, the tension of her embarassment hung uncomfortably between us. That silent second must have seemed like an hour to her, because I just couldn't say anything.  As she began to murmur apologies, I couldn't hold back any longer.

I burst out laughing.

Right then and there I told her she had given me a blog headline, and I thanked her for that. She then seemed flattered, not embarrassed, as we laughed out loud together about her husband's outburst.

She then confessed: "I guess we're just dummies. We never understood our mortgage."

Sadly, I suspect that the majority of homeowners that have an adjustable rate mortgage secretly consider themselves to be DUMMIES.  When they signed their last mortgage they were (pick one):

(1) So dazzled by their low interest rate that they paid no attention to (or really didn't want to know) the details of the mortgage

(2) Didn't care about the mortgage details because it enabled them to buy a house when prices were escalating through the roof (dazzled by the potential to make a killing by rapid appreciation)

(3) Actually wanted to know the details, but were too afraid of appearing to be a DUMMY to the mortgage broker

(4) Mortgage broker had so many loans (due to the real estate/refi boom) that he didn't take the time to help the borrower understand the details.

(5) Short term focused.

(6) All of the above.

When I am in these situations, I usually ask to see the "Adjustable Rate Rider" that is a part of the paperwork for all adjustable rate mortgages. 

This enables me to know the exact details, including the date of the adjustment, and the single most important piece of information: If loan adjusted today, this would be the rate, and here is how the calculations work.

I can make DUMMIES feel a whole lot less DUMB in just a few short minutes. Even more comforting is the fact the index to which the loan is tied has probably fallen dramatically this year.

The result? That payment hike everyone is so afraid of? That thing that gave adjustable rate mortgages a bad rap in the first place?

It might not even exist.

Having said that, it still pays to consider the RISK of future rate increases associated with an adjustable rate mortgage. 

Grab a 30 year fixed at a low rate now, assuming you have enough equity to refinance.

If the rate on the FIXED RATE mortgage is higher than the rate you will pay AFTER your adjustment (a possibility since your is index likely to be low), you will need to consider the higher price of the 30 year fixed rate mortgage to be the price of security... (payment would be higher, but rate would never adjust again).

Written by Janet Guilbault, California Mortgage Expert based out of the San Francisco Bay Area