MICHAEL G. LOUIS, ESQUIRE

Over the past few years many people have taken advantage of the low interest rates offered by lenders for Adjustable Rate Mortgages (ARMs), which have a fixed rate for a certain number of years and then the rate increases, sometimes dramatically. The increases in the value of real estate over the last few years have overshadowed the dangers of ARMs.

The problem arises when the borrower's financial condition, often due to health problems, job loss or other factors, is not as good as it was when the loan was originally obtained. This makes refinancing an ARM into a fixed rate mortgage extremely difficult.

As long as the borrower's financial condition improves or at least remains the same and/or the real estate which secures the mortgage increases in value, the homeowner should be able to refinance.

It is very important that anyone with an ARM take the time to review the loan documentation and make sure the loan adjustment date is known. With this information in hand, the borrower can then contact the current lender or a new lender about refinancing before the interest rate increases. If the borrower waits until an adjusted payment requiring an additional $600 or $700 a month in payment, the borrower may not be able to afford it. Once the ARM goes into default, it will make refinancing much more difficult and the rate offered will be high.

If the borrower's credit is bad and the loan is already in arrears and the property has not increased in value as anticipated, the borrower may not be able to afford the increased payment under the ARM and may not be able to refinance. In this case the homeowner may even be forced to sell the home to avoid foreclosure and save whatever equity exists in the home.

The grim scenarios outlined can be avoided entirely by refinancing the ARM before it is scheduled for an adjustment. The advance effort will yield no surprise payments and lots of peace of mind.

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