Monday, March 05, 2007
ARM'S (Adjustable Rate Mortgage)
Today roughly a third of America's 48 million mortgages are ARM'S and 2 million of them are due to reset to higher interest rates in 2007! A ARM makes sense when interest rates are high and likely to drop, however, many mortgages were sold as ARM'S in the last 4 years when interest rates were at historic lows, now there is nowhere for them to go but up.
For example: If you bought you home in 2003 and landed a interest rate of 3.7% on a 30 year ARM that adjust annully, by 2006 the rate could have jumped to 7.8%. If you mortgage was $300,000, your monthly payments would have climed from $1,380 to $2,160!
What to do? Read your mortgage contract. Most ARM'S have a cap on how much the rate can climb each year. If you find yourself with an "exotic" mortgage such as a interest only or payment plan mortgage and are able to refinance, do so now to a 30 year fixed rate mortgage. Many lendors require you to wait 2 years before being able to refinance. Even if you payment go up in the short term, a fixed rate is protection against an unaffordable monthly payment that can lead to foreclosure.
For example: If you bought you home in 2003 and landed a interest rate of 3.7% on a 30 year ARM that adjust annully, by 2006 the rate could have jumped to 7.8%. If you mortgage was $300,000, your monthly payments would have climed from $1,380 to $2,160!
What to do? Read your mortgage contract. Most ARM'S have a cap on how much the rate can climb each year. If you find yourself with an "exotic" mortgage such as a interest only or payment plan mortgage and are able to refinance, do so now to a 30 year fixed rate mortgage. Many lendors require you to wait 2 years before being able to refinance. Even if you payment go up in the short term, a fixed rate is protection against an unaffordable monthly payment that can lead to foreclosure.
