An adjustable rate mortgage may have sounded like a good idea in the past, but the times they are a changing. James Kutkowski runs The Law Offices of J. Kutkowski, Esq., and has more than a decade of experience advising people in how to make the most of their finances. Here, he talks about why getting a fixed rate mortgage in today’s economy is really the only way to go.
Anyone getting a mortgage today who does not get a fixed rate is not thinking. And if they decide to get an adjustable rate mortgage, or ARM, they are really doing themselves a disservice in the long run.
An adjustable rate mortgage is simply when a mortgage’s interest rate can adjust upward or downward, depending on any factor that is agreed to in the contract. Interest rates are now at an all-time low, so where do you think these rates are to wind up going? The rates are going to go up. So if you’re in the market for a mortgage, make sure you get a fixed rate mortgage.
Adjustable rate mortgages are going to be the story of 2010. In April 2010, 50% of adjustable rate mortgages are going to adjust. By the end of this year. a lot of people in the McMansions are going to find themselves in dire straits because they’re not able to handle their mortgage payment.
That means that any person who has an adjustable jumbo loan, which means a loan over $417,000, will have a big shock when those loans re-set. He could be facing an extra $500 per month payment – or more – on his adjustable rate mortgage. And it today’s difficult economy, $500 per month can be incredibly hard to come by.
Pressure on salaries combined with home payments that are going up and that means that the average homeowner will have no choice but to dip into savings to make ends meet. And when those savings eventually dry up, they are going to fall behind in their mortgage payments. The housing crisis is going to get worse, more homes will get foreclosed, and more people will file for bankruptcy.
In fact, in some cases adjustable rate mortgages are sold to people who are unable to continue making payments on them should the interest rates rise. The Consumer Federation of America has taken to calling such cases “predatory loans.” They can be described as loans that impose unfair and abusive terms on borrowers, but some people take out such mortgages anyway, keeping their fingers crossed that they will be able to continue making payments. When interest rates rise, however, they can’t.
Moral of story: If you are shopping for a mortgage in 2010, make sure to get a fixed rate mortgage.
This article is for informational purposes only. You should not rely on this article as a legal opinion on any specific facts or circumstances, and you should not act upon this information without seeking professional counsel. Publication of this article and your receipt of this article does not create an attorney-client relationship.
