A friend was talking about her adjustable rate mortgage, and how she had checked into moving it over into a conventional fixed rate mortgage, but had decided against it because the payments were the same as what she was now paying on her ARM. This logic might work provided interest rates stay the same or go down, but otherwise this is faulty thinking.
During the real estate boom that recently ended, Adjustable Rate Mortgages were sold to homebuyers at a time when everybody wanted to take advantage of the unusually low interest rates. ARMs are commonly sold to buyers with two numbers, such as 3/1. This means the mortgage is fixed for the first three years, and then becomes adjustable every year for the remainder of the mortgage. Because interest rates were incredibly low and house prices were skyrocketing, many homeowners jumped on the bandwagon, thinking they could sell or refinance before the rate became adjustable. The problem was that the housing market stalled and interest rates went up.
Not only did the interest rate on Adjustable Rate Mortgages begin to climb, the monthly payments also began going up rapidly. Homeowners began getting behind on their house payments, and many are still facing foreclosure. Suddenly their real estate investment was draining them of all of their assets.
Because of inflation fears and other financial danger signs, interest rates are poised to go higher in the near future. This means the interest rate and monthly payments will again rise and leave you financially vulnerable. The best thing you can do is refinance your mortgage into a fixed rate mortgage, even if the payments are the same as what you are paying on your ARM. The website of the Federal Housing Finance Board’s Monthly Interest Rate Survey (MIRS) lists the current mortgage interest rates. Two informative articles on mortgage interest rates are “Finding the Best Mortgage Loan Rate” and “What Is APR for Mortgage Loans.”