This will be a brave new year for homeowners with adjustable-rate loans.
Terms will be tougher for the credit-challenged.
Fewer bargain teaser rates will be offered.
And for those facing higher resets on adjustable-rate mortgage payments, it's time to negotiate.
If your mortgage is ratcheting up to a monthly payment you can't afford, you may have some leverage in lowering the rate. Your lender may even welcome the move and allow you to do a low-cost loan modification.
To date, some $150 billion in adjustable loans have reset, with $300 billion more in the pipeline, according to the Federal Deposit Insurance Corp. The greatest number of mortgage-rate increases is likely to hit borrowers this year.
In many cases, your lender may call you first. That's what happened to Dick Lepre, a loan officer for Residential Pacific Mortgage Corp. in San Francisco.
"I had a 5/1 adjustable at 4.25 percent, and Chase Mortgage called me up to reset it at 5.625 percent for seven years," Lepre told me. "Banks know you have an ability to go elsewhere for a loan. It's more costly for them to replace the loan than to keep it. They want to keep customers."
Keep in mind that almost all adjustable-mortgage contracts can be modified - if both parties agree to the terms. This avoids the hassle of refinancing and searching for new lenders.
Modification may not be an easy proposition, though.
Your loan may be serviced by a company that doesn't hold the note and may not be able to change the terms. Nevertheless, your first call should be to the customer service department of the mortgage servicing company.
Is your loan held by a direct lender? If so, the bank may ask for extensive information on your credit history and earnings - perhaps even more than when you first applied, due to tighter loan rules.
Lenders mainly want to know if your financial situation has changed.
"If your credit is good, the lender may want you to refinance," says Gerri Detweiler, credit adviser for the consumer website credit.com. "They may even have a streamlined refinance program."
Any change in credit history, income, or other variables will affect your chances of refinancing or getting a modification.
Generally, the lowest rates are offered to those scoring 700 or above on the FICO scale.
Once you get the green light from your lender, it's time to bargain. First, look around to see what rates are being offered. While it's unlikely you will be able to lock in the low introductory rate you first financed at, do some math to see which monthly payment works with your budget.
A calculator at bankrate.com can help you find a rate and payment you can afford. Also consider FHA Secure, a refinancing program available to borrowers with a steady income and payment history.
Shane Backer, of Robbins & Lloyd Mortgage Corp. in New York, says you may want to contract with a credit-repair service to improve your rating. "Look into your credit report and work with a mortgage professional," he says. "Know when your ARM expires and plan ahead."
As in any negotiation, you probably won't get your ideal rate, nor will your lender. And you may encounter some roadblocks, as loan officers are swamped with modification requests.
Is loan modification too good to be true? There are several caveats. Lenders will be happy to deal with you if your credit record is clean and your income is steady or increasing. Having more than 10 percent in home equity is also a plus.
If you obtained riskier "Alt-A," "B paper," or subprime loans, it may be much more difficult to modify a loan.
No matter what kind of loan you have, it's best to call your mortgage service company to see if you have room to negotiate. It costs nothing to ask.
John F. Wasik is a Bloomberg News columnist. He can be reached at firstname.lastname@example.org.