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What to Weigh if Considering a Refinance From ARM to a Fixed Rate Mortgage
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April 15, 2005 LOS ANGELES - People get jumpy when it comes to their monthly
expenditure layout. Especially when it involves the biggest purchase of their
life, a home. Naturally, as we see interest rates on the gradual upslope we also
see some homeowners who are inclined to get off the bus while they still can (so
to speak). Translated, it means many homeowners either are considering, or
taking action to dump their existing adjustable rate mortgage for the
ever-predictable and solid fixed-rate home loan financing.
Here's the kicker: If switching from an
adjustable rate
into a fixed
interest rate mortgage a borrower is likely choosing to pay a higher rate.
At least for the moment. This "defies gravity" somewhat when you consider that
it is predominant that a homeowner will refinance in order to obtain a lower
rate.
There are three reasons why a homeowner would backtrack as such:
- Many are refinancing as a result of having made a
decision to keep their home longer than originally anticipated.
- Some perceive it to be more simple when planning their
financial future if mortgage rates are not fluctuating, as is common in ARM
loans.
- A number of homeowners have simply changed their minds
about mortgage rates and are instinctively certain rates will continue to
gradually climb for some time to come.
The big question is, "Will rates continue to increase?" The
answer is "yes," rates should be going up continually for an unknown duration of
time. The MBA's (Mortgage Bankers Association) recent forecast calls for
mortgage rate increases totaling approximately three-quarters of a percentage
point throughout the next three quarters of this year.
The above indicates why the hybrid
ARM
has been the choice of an astonishing number of real estate and homeowners
lately. This type of loan allows the locked interest rate to remain unchanged
for for three or more years. Most industry forecasters and analysts decline to
do just that, forecast. Particularly tough is getting an analyst to actually
publish anticipations and predictions for the long haul for fear of being wrong.
The best tips we can offer when considering a lateral move out of one type of
mortgage into another is to bear in
mind how long you anticipate owning the home. This is an important deciding
factor for those considering the switch from an ARM into a higher-rate fixed
interest mortgage for obvious reasons. No one wants to get in a pickle by
continually having to pay higher rates on an ARM as plans to inhabit the home
change for the longer.
Article published April 15, 2005.
By Stockton Marquette, Mortgage
Industry Analyst.
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