Are you one of the 10 million homeowners in the country with an adjustable rate mortgage (ARM)? If so, you may be concerned about what your payments are going to be after its interest rate resets. Depending upon when you took out the mortgage and how long your initial rate period was, you could be facing a substantial rate increase.
The Mortgage Bankers Association reports that today nearly 25 percent of mortgages carry adjustable interest rates. It’s not surprising considering the savings they’ve provided over the past few years. In 2003, for example, the interest rate on a 30-year fixed-rate loan was around 6.5 percent, whereas ARM rates were under 4 percent.
But this year nearly $1.5 trillion worth of ARMs are due to reset at a higher rate. Not only have interest rates increased but the gap between the interest rate available through fixed and adjustable rate mortgages has narrowed. Those who took out an ARM for less than 4 percent back in 2003, for example, could see their mortgage rate jump to 7.5 percent after adjustment.
If your mortgage is resetting at a higher rate, keep in mind that your low-interest ARM means you’ve most likely already saved several thousand dollars a year in interest during the first few years of your mortgage. And the fact that mortgage interest is usually tax deductible means that when your rate resets there may be less net impact than you may expect on your overall finances.
If you’re concerned interest rates may continue to rise and want the security of knowing your monthly payment won’t rise to an unaffordable level, you may want to consider refinancing to a fixed-rate loan. You needn’t worry that you’ve missed the boat in terms of locking in a good rate; today’s rates are still among the lowest in history.
It may not be worth your while to refinance to a fixed-rate loan if you plan to move soon. But remember, the money you saved during most of the years you lived in your home will likely more than off-set a short period of higher interest payments just before you sell your home.
No matter what your situation, it’s important to be prepared for your rate adjustment. You may want to calculate how much you will pay after your ARM adjusts and find out about all of your available options. By knowing what to expect and by planning ahead, you can stop worrying about what the future may hold and start coming up with a solution that can meet your financial needs.
Visit the new LendingTree ARM Central Web site to calculate your adjusted payments and get objective information on everything you need to know about adjustable rate mortgages.
Published on May 04, 2007