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If you took out an ARM loan in recent years, you have probably enjoyed a low interest rate and low monthly payment. Mortgage rates have been at all-time lows for almost 10 years. However, in 2017 rates started to rise. And, the instruments (indices) that determine furture ARM rates rose too. This all but guarantees your interest rate and monthly payment will increase during upcoming annual adjustment periods.
Whether you are still in your initial rate period or have entered into the adjustable rate part of your loan, you need to consider the following:
PRIME RATE - 1-Year TREASURY RATE - 1-Year LIBOR Rate increases in 2017 AND BEYOND: More than likely, your ARM interest rate is tied to one of these three indices. As stated above, in 2017 we saw a large rise in each index. Because of these increased indices, you will more than likely see a 1.00% or higher increase in your interest rate in 2018. A higher interest rate means a higher payment. The projection is for these indices to increase again substantially in 2018....meaning your interest rate and payment will increase again in 2019. If you need a refresher course on how ARM loan work, click HERE.
The purpose of this exercise is not to scare you. It is to make you aware of the CURRENT ARM interest rate environment and the likelihood for your interest rate (and monthly payment) to continue to rise over the next few year. To see how the interest rate affects your monthly payment, click HERE.
CURRENT FIXED MORTGAGE RATES: There is a sliver lining. Though the fixed mortgage rates have risen in the last few months, we are still near all-time lows. But, the projections for 2018 is to see these fixed rates continue to rise. NOW may be a good time to convert your ARM loan to a low FIXED rate mortgage.
THE "DO NOTHING" APPROACH; Probably not a good idea. We have enjoyed great low mortgages rate and indices for almost a decade. But, that shipped has sailed. You have a small window of time to move your ARM loan into a fixed rate mortgage which can save your thousands of dollars in interest. This will allow you to "lock in" a fixed monthly payment too.
Even if you are still in your initial fixed rate period, you should still consider converting your ARM to a FIXED rate mortgage. This initial fixed period is onlly a small time portion of your loan. Don't miss the opportunity to lock in a great rate over 2-3 years of lower ARM rates.
ADVICE IS FREE!: At Cornerstone Lending, advice is always FREE. Why not take advantage of our FREE Mortgage Proposals and FREE Automated Appraisal Reports? Both will allow you to make an educated mortgage decision.
More than likely, your mortgage is your biggest monthly payment.....don't gamble on future interest rates.