Are Adjustable Rate Mortgages Back?
As we have all seen in the past few months, interest rates have started to rise. Once in the 3.5% range, a traditional 30 year fixed mortgage rate will be closer to 4.5%. Although this is still an excellent rate, it has been a shock to many home owners and potential buyers. So, is it time to start considering adjustable rate mortgages?
Unfortunately, ARMs are held responsible for the housing and economic crash. But we have to remember that is was the choice that the consumer and industry professionals made that caused the meltdown, not the actual product itself. ARMs work in the right situation.
Two basic rules of thumb to use when considering an ARM product are: (1) do you plan on staying in your home more than 10 years? If so, than a traditional fixed rate is a better option. Typical ARM rates are fixed for one, three, five, seven, or ten years and then begin to adjust. Investors who plan to resell, or borrowers who expect a pay increase or plan to “buy up”, can do so within the fixed rate period, and prior to the first adjustment.
The second rule of thumb, but one to go at a little more cautiously, is the possibility of home values to increase. It is forecasted that by 2017, home values will be back in line with values from May 2007. If this proves to be true, then borrowers may have a considerable amount of equity in their homes and be able to safely refinance out of an ARM and into a fixed rate.
Adjustable Rate Mortgages are safe products when they are used correctly and ethically. They need to be completely disclosed by industry experts and fully understood by the consumer.
For more information, please feel free to contact us!