Re-Evaluate Your ARM
With the change in interest rates over the last few months, re-evaluation of your adjustable rate mortgage is a good idea. A client who purchased a home last year with a pay option, interest-only ARM recently asked me to do just that for him.
At the time of his purchase, he had not sold his home in Northern Virginia but needed to go ahead and close on the new home in Richmond. The program we chose for him was great at the time because the lender didn’t take issue with the new purchase being made prior to the current home being sold. The lender also didn’t object to the equity line loan that we used to bridge funds for down payment and closing costs. The pay option allowed my client to keep his payments affordably low while he was making mortgage payments on both houses.
Now, a little over a year later, the former home has been sold, the index on the ARM went up and his payments have been continuing to adjust upward too. (Note: Many pay option ARMS are based on indices that adjust monthly.) The increase in payment from his initial one has been over $350 per month. That is an uncomfortable increase for most homeowner’s budgets. Looking at the situation now, circumstances being very different, the pay option ARM just didn’t make sense anymore. While there was the expense of refinancing in the form of closing costs, we roled those costs into the new loan amount so that he wasn’t out-of-pocket any monies at the closing table.
Through the evaluation, even though the loan for the refinance would be higher to cover closing costs, converting to a fixed rate saved him the $350 a month increase and he no longer has to worry about his payments adjusting. With the increase of fuel costs, that $350 savings is a big plus and more than offset the expense of the refinance.
Situations like these are common. The best way to ensure that your mortgage is right for you now is to have your mortgage professional help you evaluate it based on current conditions. If the mortgage you got only two or three years ago no longer works for you as market conditions change, then it’s better to address it now than to wait until the situation worsens further.
Protect your home investment and your fiscal health. Regularly reviewing your mortgage should be part of that process just as you regularly review your other investment choices. A qualified mortgage professional can help you determine what solutions are available and which one is going to ensure that you continue to meet your long-term financial goals.