Title:
Adjustable Rate
Mortgages – Interest Rate Strategy
Word Count:
440
Summary:
Over the last few
years, many people squeezed into new homes using adjustable rate mortgages.
With interest rates going up, you now need a new interest rate strategy
Keywords:
adjustable rate
mortgages, arms, alan greenspan, interest rates, federal reserve bank, fixed
mortgage
Article Body:
Over the last few
years, many people squeezed into new homes using adjustable rate mortgages.
With interest rates going up, you now need a new interest rate strategy
Adjustable Rate Mortgages – ARMs
Adjustable rate mortgages carry a bit of a gamble for home owners. Essentially,
you trade smaller interest rates and lower initial payments on the gamble rates
will not increase over time. If rates stay low, you make out like a bandit. If
rates increase, you need to consider your options to avoid getting stuck with a
high interest rate loan and resulting cash flow problems from increased monthly
mortgage payments.
For the last three or four years, adjustable rate mortgages have been offered
with incredibly low interest rates. Many people used these low, low, low rates
to buy homes that would otherwise be beyond their means. Starting in 2004,
Federal Reserve Chairman Alan Greenspan started making noises about increasing
money borrowing rates. He has followed through on these hints. Although
mortgage rates aren’t tied directly to the Federal Reserve Bank, they are
heavily influenced by it. As a result, many people are now facing tight
finances.
Avoid Rising Rates
There are really only two solutions for avoiding the increase in interest rates
on adjustable rate mortgages. The first strategy is to immediately convert to a
fixed rate mortgage product. Fixed rates are still at historic lows when
compared to rates offered over the last 50 years. By flipping to a fixed rate,
you will be able to solidify your budget and finances since you will know
exactly what you have to pay each month. If rates decrease in the future, you
can always try to flip back to an adjustable mortgage loan.
Unfortunately, some home owners are simply going to have to face the fact they
lost one the interest rate gamble. Typically, this will occur when you realize
you simply can’t afford to make the monthly payments required by getting a
fixed rate loan. In such a situation, you are going to have to sell your home
and downsize. In most situations, it is better to do this now since you’ve
probably built up a sizeable chunk of equity over the last few years and want
to avoid a loss of that equity as the market cools down. While this may sound
like a disaster, it really isn’t. Yes, you have to downsize, but you should
still have built up a chunk of equity.
Interest rates are going up whether you want to acknowledge it or not. The time
to deal with your adjustable rate mortgage is now, not when you straining to
make payments.