Friday, August 2, 2013

Should You Get An Adustable Rate Mortgage in 2013?

Adjustable Rate Mortgages Make a Comeback w/ Mortgage Interest Rates Uptick

The young couple was besides themselves.  They had gone through the arduous process of applying for a mortgage refinance, had the appraisals, credit checks, and filled out all the paperwork.  Everything had seemed to be ready to go.

Then, the Fed spoke.  Bonds dropped.  Interest rates went up almost 1.5% overnight.  The couples mortgage payment to income ratio was no longer under 45%.  The loan was going to be denied.  Now what??

An ARM to the rescue.  With a 7 year ARM they were able to get a starting rate lower than the fixed rate had been only a week ago.  They satisfied themselves that the savings over 7 years would give them a hedge against the inevitable increase in payments that would come when the 7 years was up.

According to Business Week:

ARMs have a strong appeal for buyers who don’t plan to remain in their homes for long. Vivian Cohn of Hollister, Calif., lowered her monthly mortgage payments to about $940 from $1,400 in May when she took out a 5/1 ARM, meaning the rate is fixed for the first five years. After that, her 2.2 percent initial rate could adjust as much as 5 percentage points higher. A human resources manager at a Silicon Valley company, Cohn, 60, says she plans to retire in two years and move to Panama with her husband. If the couple can’t sell the house, she says, they’ll rent it for a while and then put it back on the market before the five-year rate lockup expires. “A fixed rate isn’t for everybody,” she says. “We know we’re moving, so there’s no point in paying for a guaranteed rate if we won’t use it.”

We have long stated that ARM's do better than Fixed Rate Loans over almost any period of time and most circumstances.  It could be argued that someone who can get a fixed rate mortgage at today's rates would have good prospects for beating the averages.  However, most folks don't stay in a home over 10 years, so the savings on an ARM over the early years could work out for anyone who sells within 5 - 10 years, even in this climate.

When you are faced with choices, sometimes they can seem overwhelming.  For most of us, any choice having to do with complex math is already causing dread.  We are able to help you with those decisions based on years of experience, a broad knowledge of the options, and hundreds of cases.  Give us a call, and we can help you through choose the right path. 

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