If you are a homeowner that purchased your home with an Option Adjustable Rate Mortgage, you might be feeling the waters rising when it comes to your monthly payments. If you have one of these risky “payment plan” mortgages and have only paid the minimum payment amount, you could be in trouble and don’t even know it. Here are several tips to help you stay afloat with your option ARM and avoid losing your home to foreclosure.

Option Adjustable Rate Mortgages or so called “payment plan” loans are especially troublesome for many homeowners. These loans allow the borrower to choose their payment amount each month from four options, the lowest being a minimum payment amount that does not cover all the interest due that month. The unpaid interest is added on to your loan balance which results in a phenomenon called “negative amortization.” Negative amortization means that your loan is actually growing over time instead of being paid down the way a mortgage is supposed to be paid. When your growing loan balance reaches 125% of what you originally borrowed, the mortgage blows up in your face and the payments skyrocket.

The popularity of these risky loans has soared over the past several years, partly because homeowners don’t understand what they are getting themselves into when borrowing with an option ARM. According to a recent survey of national mortgage lenders over 12% of all mortgages taken out this year are option loans. This is up from .05% of loans in 2003. According to the same survey nearly 80% of homeowners with option ARM loans only make the minimum payment each month; 1 in 5 of these homeowners making the minimum payment will lose their homes at foreclosure.

Refinance Now If You Can

These risky option ARM loans are popular because it’s very easy to qualify for these loans. If you are a homeowner with poor credit refinancing might not be an option; however; if you are able to refinance you should get out of this loan immediately. Choosing a mortgage with a fixed interest rate will give you predictable mortgage payments that you can plan your budget around. You will begin paying down the balance the way a mortgage was intended.