Adjustable Re-Set?

I have received a bunch (more than a few, but less than a lot) of calls in the last month from homeowners whose 3 or 5 year fixed adjustable rate mortgages are adjusting for the first time. And they are wickedly bad adjustments! These borrowers, as well as the “option arm” borrowers, are really being hit with payment shock. In many cases, the 3 or 5 year loans were taken out with the interest only option. Now the loans are adjusting skyward and amortizing over the remaining 27 or 25 years. Speak about an unaffordable payment for many people!

In many cases I do have a fix. Would I really have brought this subject up if I didn’t? The solution in most cases is a plain old vanilla 30 year fixed rate mortgage. Short term interest rates are going up faster than a home sick angel while long term rates have stayed relatively flat. I realize that I occasionally ramble, but here are the numbers: 30 year fixed rates for loans under $417,000 are at 6.625% for 0 points today. The 3 year AND the 5 year fixed are ALSO at 6.625% for 0 points! I have always preached that don’t pay for an interest rate that is longer than you need- if you’re going to stay in the home for 3 more years then only get a 3 year fixed. The rates have always been less. Now we have the exception to the rule. If you are going to refinance, take the 30 year fixed and never look back. Especially if you are one of the many homeowners whose present adjustable rate is now re-setting to the upper 7% or low 8% range!

Fixed Interest Rates for conforming loans (under $417,000) as of 6/20/06 (a.m.) are:
(Rates are for 0 point loans, for a 1 point loan, reduce the interest rate by a quarter point)
30 year fixed: 6.625 (APR 6.70%) payments are $2,670.10/mo.
15 year fixed: 6.375% (APR 6.497%) payments are $3,603.92/mo.