Monthly Mortgage Payment To Double For Some Homeowners

Interest rates are on the rise and homeowners who have adjustable rate mortgages could see large increases in their forthcoming adjustments.

The Federal Reserve Board made it clear in 2005 that they would continue to be increasing short-term interest rates at a “measured pace.” The Fed Funds Rate was hiked several times from 1.0% to 4.25% since June 2004 in an effort to curb inflation. Some economists believe it won't stop until the Fed Fund Rate hits 5.0% or more.

Mortgage interest rates are affected indirectly by these changes. An increase in the Fed Funds Rate has an impact on financial markets as a whole, but mortgage rates may go up or down based on the perception investors have of current economic statistics and their reaction to the Federal Reserve's after-meeting statements.

Our current market reflects the reaction of investors reading between the lines on comments made by the Fed, and mortgage interest rates are going up. This will affect home owners with adjustable rate mortgages (ARMs) tied to indexes that are based on short-term interest rates. This includes the 11th District Cost of Funds, 12-Month Treasury Average (MTA), London Inter Bank Offering Rates (LIBOR) and others.

This doesn't mean that everyone with an adjustable mortgage is in trouble right away. Some indexes are more volatile than others. COFI moves slower than other adjustable rate indexes, while the LIBOR fluctuates with more volatility. But remember, when an ARM adjusts, the new interest rate is a sum of the borrower's fixed margin plus the current rate of the index the mortgage is tied to.

Consumers who financed homes with 3 or 5 years ARM's, which have the beginning years of the loan at a fixed interest rate could be especially hard hit when the fixed term of their loan is over. Consumers who foresee paying an interest rate that is significantly higher may want to consider refinancing to take advantage of the stability of a fixed rate mortgage.

This is also a good time for borrowers who started out in an adjustable rate loan due to a poor credit score to transition into a fixed rate loan if they can. Once a track record of making mortgage payments on time and in full has been established, this should have a positive effect on the credit score and there's a good chance the borrower may now qualify for a loan with a lower interest rate.

As with any decision to refinance, it is important to take the terms of the existing loan, the cost of the new loan, and the borrower's long-term needs into consideration. A qualified mortgage professional should help weigh the options by providing a clear assessment of available loan programs for the consumer.
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Paul Harden is affiliated with iLendingPRO, a Licensed Broker, CA Department of Real Estate. Other helpful information regarding the can be found at: http://thehomemortgageguide.com.

Contact Paul Harden for more insights into this topic. Direct line: (714) 209-7593 Email: paul@thehomemortgageguide.com

This release was published on openPR.