Adjustable-rate Mortgages are for the Birds
According to Bloomberg news, Adjustable-Rate Mortgages (ARM’s) are going out of style nowadays in the United States. No surprise there, given the incredible number of people today who are losing their homes due to soaring interest rates. In fact, the LIBOR rate rose approximately two-thirds of a percentage point just last month.
Many borrowers choose adjustable-rate mortgages in order to take advantage of the lower interest rate that it inially offers, and corresponding lowers monthly payment. However, this initial rate is generally only secured for a limited amount of time, at which point the interest rate is subject to increase or decrease once a year, every year.
For example, a 3/1 ARM will have a fixed rate for three years, at which point it can be adjusted once a year for the life of the loan. Many people purcased homes using this type of Adjustable rate mortgage just a few years before our current recession, only to be hit hard by the bursting h ome bubble and subsequent rise in interest rates. Many people, and probably some current readers of this blog, spend many a sleepless night worrying about which way the LIBOR rate is going to go.
Adjustable-rate mortgages can be a great way to get into a home with a lower monthly payment. But the current market crash has caused many people to stay away from there for good. In fact, more than three hundred billion dollars of home loans will be refinanced by the end of next month, and ninety percent of those people will chose a fixed interest rate, according to Fannie Mae.
