Is It Time to Check Your 3 or 5 year Adjustable?

Are you one of the many, many homeowners who financed your home with a 3 or 5 year fixed/adjustable rate mortgage in the last few years? These loans whose initial interest rate is fixed for the first 3,5 or 7 years were a very good alternative for many homeowners. The interest rate was generally 1-2% beneath a traditional 30 year fixed and protected the homeowner from a quickly rising interest rate market. However, they are now beginning to adjust. Those adjustments may take the interest rate from the upper 4% range to the upper 7’s and even low 8’s! The new mortgage payment is going to be hit with a double whammy in some folks’ cases that have been paying an “interest only option.” Not only will the interest rate skyrocket on them, the loan will now begin to amortize (pay-off) in the number of years left on the loan. In other words, the interest rate could go to 8% and, instead of being a 30 year loan, you only have 25 years to pay it off in the case of a 5 year adjustable.
Now may be the time to refinance that loan and any home equity loan you may have and roll both of them into a 30 year fixed rate. In the bond market, the interest rate environment we are currently in is called a yield inversion curve. In simple terms, the interest rates for shorter term loans are considerably higher than for longer term loans. Just as the 3 or 5 year fixed rates may adjust to around 8%, a new 30 year mortgage for “no points and no fees” (you pay a slightly higher interest rate for this) is in the mid 6% range. So, even if you have a year or two left on your fixed period, you can lock in today’s low long term rates for no out of pocket expenses and leave the worrying to the other guy. Give me a call and we can talk about your specifics.

Mortgage rates for conforming loans (under $417,000) as of 7/24/07 (a.m.) are:
(Rates quoted are for 0 point loans, subtract about half a point in rate for 2 points in fee)
30 year fixed 6.625% (APR 6.669%) payments are $2,670.10/mo.
15 year fixed 6.25% (APR 6.36%) payments are $3,575.45/mo.

Posted by bruce at July 30, 2007 09:12 AM