Don't get caught by surprise when your adjustable-rate mortgage, or ARM, resets. Here's how you can be an informed consumer.
First, you have to know what "reset" means. By definition, the rate on an adjustable-rate mortgage goes through at least one adjustment. Those adjustments are called resets. In recent years, the most common kinds of adjustables have been 3/1 and 5/1 ARMs.
With a 3/1 ARM, the initial, introductory rate lasts three years. Then, on the 37th month, the loan is reset for the first time and the rate is adjusted upward. In most cases the rate is reset every 12 months after that. With a 5/1 ARM, the introductory rate lasts for five years and the first reset is at the 61st month.
To know when your reset date will occur, pull out a copy of your loan contract. On the first two or three pages, there should be a section that details when the rate changes and how the new rate is determined. Look for a headline that says "Change dates." The first reset date, and the timetable for subsequent resets, should be in that section. The reset amount can be very substantial & cause your payment to increase beyond what you can afford.
If you discover your loan is about to reset in the next 30-60 days, feel free to call me and we can review your loan options. Now is a great time to get a 30 year fixed. Rates are the lowest they have been in 2 years.
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