With interest rates rising, many people are wondering if they should refinance their Adjustable Rate Mortgages (ARMs), especially since about one in four mortgages will have their interest rates reset in 2006 or 2007. This it means your interest rate is adjusting and probably sooner than you think, especially if you have a 2/28 or 3/27 hybrid ARM. You know your payment is increasing, perhaps as much as $300 per month, as rates continue to rise. So now the question is whether to refinance into an interest only mortgage, another ARM or go with a fixed rate mortgage. If you only plan to stay a few more years, you may want to consider an interest-only mortgage or another ARM that offers a longer fixed period before the adjustable period of interest increases.
The introductory rate may be higher than your previous loan: an average of about 6.09% for a 1-year ARM and 6.59% for a 5-year ARM, up from 5.2% on this time last year, but probably much less than what you’ll pay when your interest rate adjusts. If you plan to stay for a long time, you may want to get a 30-year or 40-year fixed-rate mortgage. The average cost of a 30-year fixed-rate loan rose to 6.93% in the latest Interest.com survey, and the Federal Reserve Bank raised the rate it charges banks to borrow money another quarter point a week. pass. 40-year fixed-rate mortgages will likely get you anywhere from a quarter to a half percentage point higher. You’ll also pay more for other fixed-rate loans, according to Interest.com, the national survey of lenders: 15-year loans rose to 6.57% after hovering in the 6.3% range for the past month, vs. 5.23% one years ago. Jumbo 30-year loans (over $417,000) increased to 7.11%, from 5.89% last year.
If you plan to get a fixed rate loan, you need to act quickly because mortgage rates are expected to top 7% in the coming weeks. Do you have an adjustable rate home equity loan or home equity line of credit (HELOC)? If so, you may want to consider refinancing the mortgage into a second fixed-rate home loan because introductory rates for ARMs are rising even faster than those for fixed-rate home loans. Act quickly before rates go up again.
