To Avoid Reset Shock, Plan Ahead

The letters say, "This is an early message to alert you that, based on your current payment trends and potential future interest rate changes, the monthly payment you will be required to pay may increase significantly."

A model letter that Countrywide provided to me includes this hypothetical example of what could be ahead for a California homeowner making only minimum payments on a $402,000 loan. The current full interest rate on the loan is 7.6 percent, but the borrower has been paying just $1,348.47 per month, far less than what's needed to fully amortize the mortgage over its 30-year term.

If the loan reset at today's rates, the letter explains, the full payment required would be $2,887.50 -- more than double what the homeowner has gotten used to paying. Future reset rates could be even steeper, making the potential payment crunch worse.

Countrywide's helpful advice to its customers who want to prepare for their resets:

· Switch their payment option out of the minimum if they can and move to either a 15-year or 30-year standard-amortization plan.

· Switch to an interest-only option if full payments are not feasible at the moment. At least interest-only payments will not result in still-higher principal balances to pay off later.

· Explore alternative refinancing options sooner rather than later.

That's good advice for just about anybody facing big resets in the coming year. Maybe other major lenders will see the benefits of reaching out to their most vulnerable customers before they get smacked with payment shocks they never knew were coming.

Kenneth R. Harney's e-mail address isKenHarney@earthlink.net.