Increasing Rates on Adjustable Rate Mortgages (ARMs)
18 August 2006Everybody Loves Your Money has a good post on how the people who’ve been getting adjustable rate mortgages over the last few years are facing a financial disaster in many cases:
I keep reading about all the people that are one step from doomsday. Most of these people are dealing with adjustable rate mortgage increases. Why did they get an adjustable rate mortgage in the last couple years? From a purely financial perspective, it seemed like a riskier approach because interest rates were some of the lowest in 40 years. I can appreciate that the low house payments were tempting, but I guess I’m just too risk averse.
As he points out, the people who bought the most house they could at low rates you can get with an ARM are going to be in for a rude awakening, as the current higher rates are beginning to kick in and cost these people a lot of money. There’s still hope, however, as you can refinance at a fixed rate – albeit higher than what you could have paid a few years ago. The lesson: when fixed rates are at 30 year lows, don’t go with a variable rate that’s going to change in a few years. Go check out the post and the blog, which has several other interesting posts in the last few days.
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