Is your ARM broken or is your ARM breaking?

Since the Federal Reserve recently halted its three-year quest to raise the prime rate every six weeks, most people with adjustable-rate mortgages (ARMs) were hoping their already high rate would stabilize. Unfortunately, some ARM-linked indicators take up to 18 months to “reach” a stable prime rate. This means that many homeowners have seen their rate continue to rise in recent months, despite no change to the prime rate.

Rising interest rates, which mean ever-increasing payments, have left many homeowners scrambling to make their next mortgage payment, and it’s also a major factor in the rise in foreclosures across the country. In many southeastern states, large increases in property taxes and homeowners insurance hit at the same time, making the situation even worse. The combined effect in some cases has resulted in total payments that are 50-60% higher than just 1-2 years ago, which is a change few consumers can handle.
Fortunately, due to the circumstances of the long-term bond market, Fixed Rate interest rates

Mortgages have lagged behind the big jumps in ARMs, and this offers a solution for homeowners who can’t afford to keep living in their own homes. But whether or not this is a good solution for you depends on a variety of factors, and we hope you can use the information in this article as a starting point in determining whether switching to a fixed-rate mortgage will help you.

First, if you are “stuck” on an ARM that was recommended to you two or three years ago by a licensed mortgage broker or other mortgage professional, don’t feel so bad or blame the mortgage broker for giving you bad advice. Historically, ARMs are much better than fixed-rate mortgages and can save you tens of thousands of dollars in the long run. Furthermore, no one could have predicted the changes in the economy and the Federal Reserve’s reaction to those changes, causing rates to skyrocket in just three years. The advice you were given three years ago was sound and may hold true in the long run. But if you can’t pay your mortgage now, you may need a change of plans. To find out if switching from your current ARM to a fixed-rate mortgage is a good idea, just answer the questions below and they’ll guide you to a solution.

1. Can you pay your current mortgage payments without falling behind on your payments?

Yes – Go to the next question No – Contact a licensed mortgage broker to discuss options
You need to make some kind of change now, before you fall behind on your payments or even lose your home.

2. Is your credit score worse or basically the same as when you got your current mortgage?

Yes – Go to the next question No – Contact a licensed mortgage broker to discuss options
If your scores are significantly better, you may be paying an ARM rate that is 3% or more higher than the best fixed rate available to you at this time.

3. Is the current interest rate on your ARM less than 7.5%?

Yes – Go to the next question No – Contact a licensed mortgage broker to discuss options
Current fixed rates could save you 1-1.5% or more on your ARM if the rate is higher than 7.5% now.

4. Do you have only one mortgage on your house? (no second mortgage or Heloc)

Yes – Go to the next question No – Contact a licensed mortgage broker to discuss options
It may be possible to combine your mortgages into one lower rate first mortgage and you could save hundreds of dollars each month.

5. Do you no longer pay (or have never paid) mortgage insurance (PMI)?

Yes – Go to the next question No – Contact a licensed mortgage broker to discuss options
You may be able to refinance your mortgage to a fixed rate and remove your mortgage insurance at the same time.

6. Is the total amount of your mortgage more than 75% of the value of your home?

Yes – Go to the next question No – Contact a licensed mortgage broker to discuss options
If your LTV is less than 75%, you have capital available to get the best rates on a refinance with little or no out-of-pocket cost.

7. Do you plan to stay in your current home for less than 2 years?

Yes – Go to the next question No – Contact a licensed mortgage broker to discuss options
For most refinances, the break-even point (where refinancing costs equal payment savings) is 1-2 years.

8. Do you plan to stay in your home for more than 7 years?

Yes – Go to the next question No – Contact a licensed mortgage broker to discuss options
In the long term, ARM rates should drop back to a point below current fixed rates, but in the short term you could still save thousands of dollars.

9. Is your other debt with high interest rates (credit cards, finance company loans, etc.) small or non-existent?

Yes – Go to the next question No – Contact a licensed mortgage broker to discuss options
Depending on your equity, credit scores, and debt ratio, you may be able to combine all your debts into one mortgage with a much lower fixed rate and total monthly payment.

10. Do you have enough savings to cover any large expenses you know may occur in the near future?

Yes – Go to the next question No – Contact a licensed mortgage broker to discuss options
You may actually get some cash out of your principal, get a low fixed rate, and use that cash to take care of other future expenses.

11. Does your current mortgage still have a prepayment penalty? (usually the first 2-3 years)

Yes – Go to the next question No – Contact a licensed mortgage broker to discuss options
Prepayment penalties can be quite large and reduce the money available for closing costs or cash back. Also, if your ARM is older than 2 or 3 years, your interest rate will probably be higher than it needs to be.

12. Will you retire in less than 10 years? Do you have a well-funded retirement account?

Yes – Go to the next question No – Contact a licensed mortgage broker to discuss options
If you’re still 15 to 20 years or more from retirement, you may want to consider a plan that allows you to take money out of your principal and reinvest it at a higher rate of return than your mortgage interest rate, which can be double or even triple the money available to you at retirement.

13. Are property values ​​in your area flat or declining?

Yes, keep your ARM No, contact a licensed mortgage broker to discuss options
The money you have invested in your home (your equity) does nothing to increase its value. Your down payment and payments toward principal are basically “cushion money.” It doesn’t earn interest and it doesn’t make you any money, since the value of your home goes up or down regardless of your equity. If your home’s value is rising rapidly, you may be able to refinance at a fixed rate, plus withdraw some of your equity to reinvest at a higher rate of return. In a future article, I’ll talk about a program that uses this concept that can double or even triple the cash you have available at retirement.

Obviously, each individual situation is unique, and this series of questions is just a starting point to help you determine if meeting with a mortgage professional to discuss your options is a good idea. And of course, if you have excellent credit, low debt ratios, and a great relationship with your bank, you can always check with them to see what they have to offer. However, for most people with average credit and debt ratios, you’ll get a much better deal on your new mortgage through a competent mortgage broker. In fact, most of the big banks like BankAmerica, Suntrust, Washington Mutual, etc., have wholesale lending divisions that you can only access through licensed mortgage brokers. These wholesale divisions have a wider variety of programs and lower rates than the bank’s retail branches! A reputable mortgage broker can usually get you a mortgage from your bank at a lower rate than you could by going to the bank yourself. Plus, they’re not required to use that bank’s program and can research an entire network of lenders to find you the best deal, all with one application. Do you think someone at your bank would send you to a competitor for your mortgage, because they know their rates are half a point better? Of course, no.

A broker will usually charge you a fee to find the best loan for your situation, but that means they work for you and help you find the best mortgage available, without having to visit dozens of banks or websites, and without having to fill out numerous applications. . It also prevents your credit from being pulled dozens of times, which can lower your scores. Plus, they have access to hundreds of other wholesale lenders who offer programs for almost any credit or situation.
Some brokers charge an advance application or consultation fee, but many will discuss your situation and options with you free of charge. Many specialize in different niches, such as first-time homebuyers or bankruptcies, while other local businesses specialize in loans in specific states or geographic areas.

These smaller companies have access to the same lenders as the larger companies and often offer better rates, lower fees, and much more personalized service. I can recommend a local company that specializes in Florida mortgages, Star Mortgage. Contact phone number 813-882-8878, or visit the website at http://www.StarMortgageBroker.com. If you don’t live in Florida, try calling a few listings under “Mortgage Broker” in the online yellow pages, ask a few friends if they know an agent they trust, or visit http://www.mortgagepages.com, and choose your state from the dropdown list.
Whatever you do, find someone local who can review your mortgage and advise you on the best option for your particular situation. Good luck.