Adjustable Rate Mortgages (ARMs) - An Overview
Adjustable rate mortgages have been an important part of the mortgage landscape since the 1980s. And though the "ARM" loans can contain some risk, these mortgages do offer borrowers a chance to secure a lower introductory mortgage rate and monthly payment.
If managed properly, the overall risk of the adjustable rate feature can be reduced. But this requires borrowers to stay ahead of future interest rate increases and overall market changes. Predicting future mortgage rates is difficult and could be compared to predicting future stock prices.
Following the global financial crisis and housing crash in 2008, mortgage rates reached new all-time lows. Many homeowners locked in low fixed rates, but others continued to use ARM loans to grab even lower mortgage rates. Until recently, this "risk/reward" ARM gamble had paid off.
Fast forward to to 2018. Over the last year, fixed mortgage rates have increased 1.0 to 1.50% percent, nearing the 5.0% mark. Those borrowers who previously locked in lower fixed rates are enjoying the security of not only a FIXED rate, but a FIXED payment. However, homeowners who used ARMs loans are now facing a new delimma.
Based on the current mortgage rates and the likelihood of future interest increases over the next 1-3 years, it's a safe bet that current homeowners with ARM loans are in for an unpleasant surprise when their interest rates fall out of their initial free period. This surprise falls in the area of a higher rate, but the biggest disappointment will come with a increased monthly payment.
The good news is there are solutions to help minimize this payment shock. But it requires to take action now. Call TODAY to discuss all your mortgage options and request a FREE mortgage proposal. 440-247-5656.