Do I need to get out of my ARM?
Analysts expect a record amount of foreclosures in the coming months. In particular, “hot” real estate markets are at risk. Places like Boston, New York and San Francisco – which have seen housing prices grow astronomically for the past few years – could become the scariest markets for existing home owners. As mortgage interest rates go up, homeowners with adjustable rate and interest only mortgages could feel the squeeze. Believe it or not, your mortgage payment could grow every month, and with an interest only or adjustable rate mortgage, there is little you can do about it. Now may be the time to look into a fixed rate mortgage.If you have a traditional fixed rate mortgage, you probably don’t have to worry. Your mortgage interest rate is locked in, regardless of what happens to housing prices around you. More exotic home loans, though, could be troubling in the current financial climate. If you have an interest only or an adjustable rate mortgage, refinancing should be a top priority.
The reason for the insanity in the mortgage market is the recent credit crunch caused by subprime mortgages. Subprime mortgages are risky. Lenders issue them to prospective home buyers who may not qualify for mortgages with more favorable terms. For a higher interest rate, the lender accepts the risk. Unfortunately, these loans have caused problems for mortgage lenders this year, leading to substantial losses. As a result, lenders are tightening the rules on subprime lending, and they are issuing fewer adjustable rate and interest only mortgages.
Borrowers who currently have interest only or adjustable rate mortgages may want to think about refinancing. As rates go up, your mortgage payment increases. You could see your cost of living increase every month simply as a result of changes in the market for mortgage interest rates. You are at the mercy of the market, and your home could wind up at risk. Instead of hoping for rates to be cut, you can take action today.
Refinance into a fixed rate mortgage, and enjoy the predictability of the same monthly mortgage payment every month. Your fixed rate mortgage may not be as cheap as the ARM with which you stated. But, times have changed, and so have interest rates. Hunt for a deal later. Now is the time to be conservative. Start looking for a fixed rate mortgage today!
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