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Get Out of That Adjustable Rate Mortgage

This entry was posted on 9/26/2007 1:34 PM and is filed under uncategorized.

There are a lot of people throughout the country and especially in the Inland Empire that have adjustable rate mortgages. Adjustable Rate Mortgages, Option ARMS, and short term fixed loans that are fixed for just 2, 3, or 5 years were very popular because at the time people were able to get those loans and save some money every month over a fixed loan. Why? Well, rates for ARMS have been better than fixed for the last few years and people wanted to have as low a payment as possible. Payment is king...most people don't care about purchase price, can I afford the monthly payment. This is the reason for so many foreclosures.

When a short term fixed loan adjusts, the payment JUMPS. When you make the minimum payment on an option arm, your loan balance jumps! When you don't have a 30 year fixed loan, you take a risk. I had been advising my past clients since last year to get out of their short term fixed loan and to get into a nice safe 30 year fixed. Some listened, some did not. Those who didn't are sweating a little today because the values are dropping, the guidelines are tightening and now they can't refinance and their loan is adjusting.

It's important that if you are in an adjustable mortgage that you get out into a fixed loan. Those who don't might find that they are "stuck" with a payment that is adjusting upwards out of their control.

Remember that when foreclosures hit the market and sell...comparable values fall for properties around them. Lower values, tightening lending guidelines can combine to form the "perfect storm" where people simply can't even refinance in an effort to get out of that adjustable rate mortgage. The last thing you want to be in this market is adjustable.

There are a lot of programs coming out to help homeowners like FHA Secure, FHA Access, and standard FHA. VA loans are coming back too and are very competitive because they are all 1 loan with no mortgage insurance.

If you are an agent, call all your past clients and educate them about how important having a fixed loan is right now. If you are a borrower, it's time to refinance into a fixed loan.

Questions or comments?

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4/30/2008 1:15 AM Richard wrote:
Great post,

Adjustable Rate Mortgages can allow you to afford a bigger mortgage. If you know your income will be rising or know you will be selling the house in less than five years, ARMs may be a good option for you. During the boom, the low adjustable rates made it easy for people to buy homes — some they couldn't afford otherwise — but now many of those rates are going up.

Adjustable-rate mortgages (ARMs) are the second major type of loan available. With an ARM, your interest rate, and therefore your payment, can go up or down through the life of the mortgage, depending on various economic factors. The rate for an ARM mortgage usually begins lower than the fixed rate mortgages available at the same time, sometimes by as much as two percentage points. This depends on the economic conditions at the time. The terms of the rate adjustments, including when they begin and how often they occur, will be specified in the terms of the loan.
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