Finance Articles

Adjustable Rate Mortgage 2007: GuideToLenders.com Helps Homeowners Weigh Options

(PRWeb) February 26, 2007 -- Homeowners who have Adjustable Rate Mortgages (ARMs) may find the first quarter of 2007 the best time to evaluate their housing costs and financing before they're locked into unacceptable rates, reports GuideToLenders.com, an online consumer resource for broker and lender information. According to an article by GuideToLenders.com columnist Gina Pogol, increases in the prime lending rate and the resetting ARM rates and other high interest rates can dramatically increase homeowners' monthly payments.

The Mortgage Foundation predicts that $1.5 trillion of ARMs are expected to reset by the end of 2007. In her article, "Is Your ARM Broken? Refinancing Adjustable Rate Mortgages in 2007," Pogol reports that the record number of ARMs taken out three years ago accounted for more than one-third of all mortgages (http://www.guidetolenders.com/calculators/article-armbroken.jsp). Now those borrowers will find that lenders are resetting rates against 2007 indexes and margins. The resulting monthly increases can lead to what the Federal Reserve Board calls "payment shock."

Depending on your mortgage terms, Pogol warns, with negative amortization, "The balance of your loan increases with each payment instead of decreasing as it does with a fully amortized loan. At some point, your loan may reset with a higher payment, a higher rate and a higher balance as well.

Adding higher house payment to already overtaxed credit can add to payment shock. The Financial Forecast Center predicts that the prime rate will rise to 8.5 percent by mid-2007, Pogol says, so homeowners may want to consider refinancing using debt consolidation, a cash-out refinance or second mortgage. In considering a first-quarter mortgage assessment, homeowners should ask themselves:

•    Is the rate they're paying now due for a reset in 2007? What will the payment be and can they afford it?
•    How long do they plan to keep their property?
•    Is their current loan causing negative amortization and increasing their loan balance?
•    Are they worried about paying their bills and their mortgage? Do they have a pre-payment penalty?

"There are more people now than ever with adjustable-rate mortgages," reports Bankrate.com senior financial analyst Greg McBride on The Mortgage Foundation Web site. "The problem -- and you could see this coming a mile away -- is that (mortgage rates) have increased and those same borrowers are coming up for a rate increase."

Based on a three-year ARM on a $250,000 loan at 4 percent, a homeowner could see their $1,150 monthly mortgage payment climb to $1,500 if the interest rate is adjusted to 7.5 percent, well within the ARM resets that financial institutions are predicting, the Mortgage Foundation says.

Pogol's article (http://www.guidetolenders.com/calculators/article-armbroken.jsp) is one of two in-depth analyses at GuideToLenders.com helping homeowners to evaluate their mortgage status leading into the first quarter of 2007.

GuideToLenders.com is a consumer resource featuring guides on how to find the right lender or broker to provide options to best suit consumers' needs. The site has a variety of free tools and tips and provides an easy way to find multiple lenders to help consumers with their lending needs. Products offered by the lenders/brokers include new home financing, refinancing, home equity line of credit, and debt consolidation loans. To find out more, visit http://www.GuideToLenders.com.

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