More than $1 trillion worth of adjustable rate mortgages (ARMs) will be hit with higher reset rates this year, and that could add up to big trouble for many homeowners.

Already, the rate of serious delinquencies among subprime hybrid ARM borrowers was up to 15.75 percent during the first quarter, from 14.44 percent in the fourth quarter of 2006, according to the Mortgage Bankers Association (MBA).

The end of the housing boom changed the math when it comes to ARMs. Not only are mortgage rates higher, but lower home prices in many markets means borrowers have fewer options than they had before home prices dropped.

When looking at different mortgages, an ARM loan can be very appealing at first sight. Arm loans, as previously discussed, offer teaser rates in the beginning which usually reset after a few years. This teaser rate often gives individuals a false sense of security in what they can and can't afford. You must ask yourself, can I afford the highest possible rate the mortgage will reset to after the introductory period is over? If the answer is no, then you have no business taking this type of loan. Your options are to either go with another mortgage product, a different home, or wait until you can.

If you said to yourself, yes I can afford it, then you must ask if now is a good time to actually take out an ARM loan. An ARM loan can be good, especially if you feel interest rates are going to drop. No one can be sure for certain which way the market will go, but looking at historical data can help to make an educated guess.

Based on the historical prime rate, you can attempt to make that guess for yourself. Looking at past rates, which have reached as high as 20% in the recent past, it is highly possible for current rates to rise several points. However, historically as you can see, rates have not dipped much lower than what they are today.

What does this mean for potential home buyers?

It is certain your rates will go up by several points, and quite often it will go to the maximum, after the teaser rate resets.

Would I get an ARM loan?

Probably not, especially if I was making a purchase I anticipated being in for a long period of time.

Some mortgage lenders have pushed ARM loans on their clients and did not fully explain what they entailed. They did this to make an extra buck at the closing. Many homeowners are now struggling to pay their bills when their Arm loan resets. Some mortgage payments went from $600 to $1,500 per month almost tripling. The lenders did not explain what steps the homeowner needed to take to qualify for a fixed rate mortgage before the ARM loan reset. The homeowners were just happy that they got a home loan and they wern't prepared for the devestating consequences of taking out the ARM loan.