Adjustable Rate Morgage Loan (ARM) Commentary
by Steve Dennis, Managing Director
I am regularly asked to comment on a specific subject in the mortgage industry. As most of you know, I like to "look out" for homeowners and any time I can help mortgage borrowers avoid a possible disaster, I jump right in.
For now, let's turn our focus to Adjustable Rate Mortgages (ARM). As the country recovered from the 2008 Financial / Housing Crisis, one good by-product was near all-time low mortgage rates. These rates allowed homeowners to enjoy much lower payments and many borrowers chose to lock in these rates and payments with fixed rate mortgages.
Some borrowers, however, chose an Adjustable Rate Mortgage to grab even lower rates. These ARM loan rates were extremely attractive, with initial rates as much as 1.5% lower than the fixed rates. With these low rates came even lower mortgage payments.
FAST FORWARD TO 2019. Most holders of these ARM loans are soon facing a dilemma. And, most are not aware of it.
Most ARM loans are tied to the Treasury Rate, LIBOR, or Prime Rate. All three of these indices have risen exponentially over the last three years. Because of this, almost ALL ARM borrowers are going to see at least a 2.0% increase to their current interest rate. And depending on the parameters of your ARM loan, the adjusted rate might even be higher. WITH THIS INCREASED INTEREST RATE COMES AN INCREASED MONTHLY PAYMENT (to absorb the higher interest charged each month). A 5/1 ARM loan with a $200,000 balance will see a $219.00 payment INCREASE with the first interest rate adjustment (with future increases all but guaranteed).
Normally, at this point of the article I would now say "I'm not writing this to scare you", but that wouldn't be true regarding this topic. Whether you have a formal or informal monthly budget, chances are your mortgage payment is the biggest line item on that budget. A sharp, and permanent, increase to your mortgage payment could have a serious impact on your and your family's financial well-being. And, with future ANNUAL adjustments likely coming, it will only get worse.
"Don't bring me a problem unless you have a solution"..... I phrase my father ingrained in my brain. THERE ARE SOLUTIONS to your Adjustable Rate Mortgage problem, but NOW is time to take action. Fixed and adjustable mortgage rates have increased more than a full percentage point in the last year. The forecast is for these rates to keep increasing.
At Cornerstone Lending Group our motto is Providing Mortgage Solutions. We have families and budgets too. Our advice is always FREE. Call us today for a FREE mortgage analysis and FREE mortgage proposal. 440-247-5656.