Many homeowners unaware of their mortgage's specifics

Here's a public service announcement of sorts: Have you looked at your mortgage lately? Do you know if you have an adjustable-rate mortgage that could go up? If your payment goes up, can you afford it?

Some surveys estimate that one-third of homeowners have no idea what kind of mortgage they've got.

Douglas Robinson, a spokesman for the nonprofit NeighborWorks America, said too often people just hear the word "fixed" during the mortgage closing. And the payment is fixed for a bit but not forever. Is the rate fixed for one year? Two? Three? Five? Seven?

Greg McBride, senior analyst for Bankrate.com, said his firm commissioned a poll of about 1,000 adults. About 34 percent of homeowners had no idea what kind of mortgage they had.

"It's one of those out-of-sight, out-of-mind things," he said.

The Mortgage Bankers' Association estimates that $1.1 trillion to $1.5 trillion of adjustable-rate mortgages could reset in 2007. And we're looking at a bunch of resets in 2008, too.

We're not just talking about throwing an extra $20 to $50 a month into the mortgage payment either. Some homeowners could see their payments go up 10 percent or even 20 percent. Some people with a $200,000 mortgage could be looking at an extra $200 to $250 a month or more.

Higher mortgage payments can fuel foreclosures in some cases, especially if the buyer got a lower monthly payment initially by taking out an adjustable rate. The ARMs helped them stretch into a home they typically could not afford.

Some ARMs were taken out when interest rates were at 40-year lows. Rates are higher now and if the mortgage adjusts, the payment will go up.

In some states, homeowners with ARMs are in double-trouble. The adjustable-rate mortgage goes up, and it becomes hard to refinance or sell if the home's price has fallen and you have no or very little equity in the home.

Obviously, having an adjustable-rate mortgage doesn't mean a homeowner is necessarily destined for late mortgage payments or foreclosures.

Some people will sell their homes. Some will refinance to a manageable fixed rate. And some mortgages that reset this year will not go up dramatically because of limits built into the mortgage.

However, it's extremely important to know the type of mortgage you have. Knowing your mortgage could help some families avoid foreclosure, Robinson said.

Complex, hybrid mortgages can prove troublesome. Some adjustable-rate mortgages involve interest-only payments for the first three years. The rate goes up after three years, and then you start paying principal and interest, too.

McBride noted that a $750 payment for a $200,000 interest-only mortgage taken out in 2004 could hit $1,440 in 2007. The rate might jump from 4.5 percent in the first three years to 7.5 percent this year. He also noted that lenders are trying to give borrowers more notice of rate adjustments, say three months or even six months.

Reach Susan Tompor at stompor@freepress.com.