In case you didn’t notice mortgage rates have been on an upward trend. The obvious implication is that anyone who doesn’t have some sort of a fixed rate mortgage will soon see – if they haven’t already – an increase in their monthly payments. Some may even see their monthly payments double! I personally know of at least four families who have 2/28 arms. These are loans that are at a fixed rate for two years and then begin to adjust every year after. I believe these loans can adjust by as much as 2% per year based on whether or not rates are rising. Because people tend to buy as much home as they possibly can afford based on the introductory interest rate they are most likely in trouble unless they refinance soon at an affordable fixed rate loan. Another very common scenario is the one in which a buyer will purchase a home with a low rate interest only ARM. Most of these loans are fixed for a three to five year period and then begin to adjust. When I’ve asked people what they plan to do with these loans once they begin to adjust they commonly say things like, “Oh. I plan to sell the home before that happens.” or “I’ll just refinance!” The problem is that in a soft resale market – much like Phoenix is right now – it may not be that easy to unload your home in the event you can’t debt service the newly adjusting mortgage. The other option, doing a mortgage refinance, can be tricky as well for some people. Especially if they (and their pocketbooks) have grown accustomed to that low monthly payment. So what’s the solution?
1. Don’t buy more than you can afford on a 15 or 30 year mortgage.
2. Don’t try to predict where mortgage rates are headed. Your financial future is not worth the gamble.
3. If you have a crummy loan contact a mortgage broker immediately and ask about a mortgage refinance to a fixed rate loan.
4. Tell you friends and family who have crummy loans to do the same.
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