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The majority of adjustable rate mortgages are now adjusting lower than current fixed rates

 

There are millions of home owners with arm's that are adjusting this year, plan accordingly to avoid a long term financial crunch.

The market has been extremely favorable to home owners who took advantage of adjustable rate mortgages five or seven years back. These home owners have enjoyed lower rates over the past few years and are now finding their current rates, even once adjusted are coming in lower than current fixed mortgage rates. This could easily be a short term financial trap for millions of home owners. As recently as last summer their was a growing fear that the rapid increase of the house payments for these individuals could force thousands of foreclosures.

The market reacted aggressively earlier this year to try and restore liquidity to the credit markets. One of the major tactics used was to lower the Fed Funds Rate, which helped to bring down rates on almost all short term lending indexes such as the libor. The six month libor, which was a common index for arm's to be tied into is now sitting around three percent. Most adjustable rate conventional loans have margins between two and three percent, therefore these loan are adjusting into the high five or low six percent range. The challenge is that these home owners are overlooking the fact that as recently as last year the libor was well above five percent and there is a consensus in the markets that the Fed will begin to raise short term rates as early as the end of this year. Home owners who are letting their rates adjust may take advantage of a short term reprieve, but could ultimately end up costing themselves thousands of dollars by not locking into a fixed rate mortgage in the six percent range.  

7-25-2008 ? LoanNetwork.com

 

 

 

 

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