Arm Holders Expressing Concern
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(Every few months a different theme seems to ring in the real estate and mortgage industry.)
For a while, home sales decreases were the talk of the town, before that was the fast appreciation rates, but now the mortgage is getting some of the limelight.
Everywhere across the country foreclosures has been a well documented issue, as they have been increasing at unprecedented rates.
Foreclosures are a direct result of the influx of adjustable-rate mortgages (ARMS) that have become one of the most popular loan options over the past few years.
But are ARM holders worried about the potential for foreclosure? “Poll: A third of adjustable-rate mortgage holders worried about payments if rates go up” written by Jeannine Aversa of the Associated Press and published in the November 1, 2006 edition of The San Diego Union-Tribune, provides the results of a poll that tries to discover the level of concern for more future foreclosures.
“The future is gnawing at homeowner Scott Klimek. Will the interest rate on his adjustable-rate mortgage go up? Will he be able to afford the monthly payments if it does?”
Klimek purchased a five-year ARM last year to finance his home in Brighton, Colo. Since then, he is always watching the interest rate changes on the Internet and worrying about what they will end up at once his mortgage rate changes, which isn’t for another four years.
“An AP-AOL Real Estate Poll found that more than one-third – 36 percent – of those surveyed with adjustable-rate mortgages worry that they won't be able to afford their monthly mortgage payments if their interest rates increase.”
That leaves another 64 percent who remain confident that the rate changes will not affect their monthly bills and financial obligations.
The booming days (2000 to 2005) lured in just about every one who had an inkling to buy, which unfortunately caused many buyers to stretch beyond their limits, which leaves many ARM borrowers to be an a tight monthly budget. Increased monthly payments could lead to default or foreclosure.
“The situation is different these days. Mortgage rates have gone up. Home prices have dropped in some markets, while in others they are not rising anywhere near the pace they had during the boom times.”
Many homeowners are drowning in the effects of ARMs and the industry in general. “Joann Clapp, 50, of Cynthiana, Ky., has suffered a double whammy. She recently moved and hasn't been able to sell her old home, so she is paying on two adjustable-rate mortgages. The rise in interest rates has hurt her finances ‘big time,’ she says.”
According to the Mortgage Bankers Association, 24 percent of all U.S. mortgage borrowers have an adjustable rate, while the other 74 percent hold fixed rates.
Even though interest rates are lower than when they reached their peak in July and have been falling since, they are still significantly higher than last year.
“Last week rates on one-year ARMs stood at 5.60 percent, up from 4.91 percent a year ago, says Freddie Mac. Rates on 30-year mortgages averaged 6.40 percent, compared with 6.15 percent a year earlier.”
Adjustable-rate mortgage holders should expect to refinance to a fixed rate if they are currently on a tight monthly budget.
