ARMed and Dangerous
Many homeowners, who purchased homes in the last 2 to 4 years while interest rates have been on the downward swing, ARMed themselves. Now those ARMs are looking a little financially dangerous.
When the trend is downward for interest rates, a good mortgage choice is a short-term ARM (adjustable rate mortgage). For some of these homeowners, especially those with pay option ARMs, monthly payments were even more affordable and they were able to purchase homes in a higher price range than they could have under different market conditions. With soaring appreciation, new homeowners haven’t been concerned with building equity in their properties by reducing the loan principal.
The flip side now is rates are going up and those previously low payments are going up too. With the onslaught of hurricanes to our Gulf coast and the resulting shortages in gasoline and natural gas, other costs are increasing as well. With the approaching winter months comes the question of whether or not those ARM mortgage payments will continue to be affordable. Increased costs for fuel, goods and services means that previously comfortable budgets are going to be strained.
Any homeowner finding their monthly payments increasing and/or concerned about higher rates when their ARM fixed period expires should be considering refinancing their mortgage now, while 30 year fixed rates are still below 6%.
If mortgage rates continue upward and basic expenses continue to increase, homeowners that have stretched themselves are going to find meeting their monthly obligations much more difficult. Refinancing now can ensure that your payments remain within your budget. In addition, if a homeowner has equity in their property, refinancing provides the opportunity to tap the equity to pay off other unsecured debt or to hold funds in a liquid investment account which allows easy access in case of a financial emergency such as a loss of income.
Are you ARMed?