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What Can You Do When Your ARM Mortgage Goes Up?

Adjustable rate mortgages, or ARMS, are among the two main types of mortgage loans. Unlike fixed-rate mortgages, ARMs have an interest rate that changes over time. This means your monthly payment can rise suddenly. Knowing ARMs is vital to maintaining your payment affordable and choosing the right mortgage.

Why Rates Increase

Lenders who offer ARMs use an index, which is a mathematical formula which incorporates economic data such as the Federal Reserve prime rate, to determine mortgage interest rates. When you sign a mortgage agreement to get an ARM it outlines how the index works, as well as how often the lender will change the loan’s interest rate. Following economic tendencies and looking at interest rate forecasts enables you forecast rate increases before they happen so that you can avoid being caught off guard.

Adjustment Period

The conditions of an ARM include an adjustment period, which defines how long the first rate is good for and how often the lender can alter the rate once the first rate expires. Homeowners who plan to market in the near future could be able to profit by selling when a ARM interest rate goes up. This can pay back the loan, particularly if the house has increased in value, and prevent the homeowner from being stuck with a high interest rate later on. It also enables home buyers to take advantage of the low introductory rates lenders offer on ARMs.


A homeowner can only let an ARM interest rate go up, knowing that it won’t ever exceed the caps noted from the mortgage agreement. The caps may stipulate the maximum amount an interest rate can rise in a given time period. Other caps put a limitation on the life growth of interest rates. In either case, the caps help you understand what the maximum monthly payment will be. By waiting, you could notice an ARM’s rates fall based on the lender’s catalog.


Refinancing is another choice for managing increased ARM rates. Refinancing involves paying off your current mortgage with a new mortgage loan. A fixed-rate mortgage can eliminate an ARM and provide you a predictable monthly payment. The savings from refinancing depend on which interest rates are offered at the time. They also depend on the borrower’s credit history. Borrowers whose credit has enhanced while paying an ARM might qualify for lower rates when refinancing.

Financial Hardship

If the rate on your ARM climbs so much that it causes a financial hardship, you have additional choices. These include mortgage alteration, which involves asking the creditor to get a reduced payment schedule or even a longer term to repay the mortgage. Bankruptcy is a choice of last resort, but it can eliminate mortgage debt or result in a court ordering a reduced payment schedule after liquidating your assets.

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