Are you a home buyer or a home speculator? I don’t mean whether you buy property to live in or to invest in. I mean whether you have a fixed-rate mortgage or an adjustable-rate mortgage. If you have an adjustable-rate mortgage, known as an ARM, you may actually be a speculator and not even know it.

As most of us are aware, a fixed-rate mortgage has a fixed rate during the life of the loan. However, an ARM has periodically adjusting interest rates, usually related to an index affecting the amount of the payment. The initial interest rates for ARMS are usually lower than for fixed-rate mortgages, sometimes as low as 2 percent, making qualifying and paying for ARMS attractive for homebuyers.

Your gamble is that interest rates will remain steady in exchange for lower monthly payments. This can be a good strategy or a really bad one, and for a lot of homeowners, it is turning into a disaster.

Adjustable rate mortgages became very popular about five years ago when the Federal Reserve Board started cutting short-term interest rates in an effort to stimulate the economy. Now that the Fed’s focus is on stabilizing inflation rates, these short-term rates have been raised, creating havoc for homeowners who have seen their monthly payments steadily increasing by hundreds of dollars.

This is a double whammy for individuals who took an adjustable rate mortgage in order to qualify and make the stretch purchasing at the top of an inflated real estate market. Some homeowners are finding themselves in the position of not being able to pay the ARM increase and not being able to refinance. The ARM payments are outpacing incomes, and homes have not appreciated enough to cover the cost of a refinanced mortgage or to allow these homeowners to sell.

Buyers, especially investors, who opted for an interest-only line of credit or mortgage are in even worse shape, since they have not paid down any of their principal. Based on the purchase price, these owners may have a mortgage balance in excess of the value of the property, spelling foreclosure for many.

Borrowers whose house values have risen in recent years have financial room to switch to a fixed-rate mortgage and get off the treadmill. Fixed-rate mortgages have been holding steady at about 6 percent, and at the last Federal Reserve Board meeting in October, there was no increase in rates.

Keeping an adjustable rate mortgage could still be a good decision for some homeowners. If raising interest rates are not an issue for you based on your financial and tax position, keeping an ARM may work. Or if you know you will not be staying in the property for very long and don’t want to incur the cost of a refinance, maintaining the ARM would make sense.

But, unfortunately there are borrowers out there who are overextended and simply cannot afford the increased monthly payments. These people are at the mercy of the market and can only hope their personal situation improves, or property values sharply increase.

Just like the over-heated appreciation rates of the past several years should be considered exotic, so should the easy money available to finance these purchases. It looks like the party’s over. It’s time to get back to the reality of real estate with the latest mortgage fashion, 30 year fixed-rate loans — deja vu all over again.