What Rate is Your Adjustable?

Have you looked at your “pick a payment” mortgage coupon lately? That “Biggest No Brainer In the History of Man-kind” loan has adjusted. Or more accurately, it is probably now at its true interest rate and headed higher. The payment is still at that “Unbelievably Low 1%” interest rate. Unfortunately for many, the mortgage is accumulating interest at a 7½ % rate. What this means is you PAY at 1%, but the bank is CHARGING at 7.5%. Where is the difference going? It is being added onto the balance of your loan at the rate of 6½% each year. So, if your original loan was for $300,000, then at the end of a year your new loan balance hasn’t gone down but UP to $319,500! And expect the rate difference to go higher. As sure as the sun rises in the east and sets in the west, if you don’t make the higher payment in your pick-a-payment loan, your loan balance will continue to rise.
Many people took this loan because it was either the only way that they could qualify to buy the house, or more times than not, it was what the loan officer wanted to sell. Most of the major banks had their loan agents pushing these loans because they are extremely profitable for the banks with very little risk for them. For independent mortgage brokers the banks paid very well to have the client take these loans. In order to insure that the bank would lock in the profits, these loans also came with a 3-year pre-payment penalty.
Now, what do you do? In many circumstances it is far better to take the pre-payment hit (usually about 6 months of interest payments) and refinance into a (much) lower fixed rate term. These terms can range anywhere from 3 years to 30 years, and (THIS IS IMPORTANT) new 40 year fixed rate mortgages are coming where the first 10 years is interest only option!

Call us now to help get your home loan under control.

Fixed interest rates for conforming Loans (under $417,000) on 1/23 (a.m.) are:

40 year: 6.625% (APR 6.701%) payments are $2,478.58/mo.
30 year: 6.00% (APR 6.6.08%) payments are $2,500.13/mo.
15 year: 5.625% (APR 5.777%) payments are $3,434.96/mo.