If you have an adjustable rate mortgage (ARM) you have probably been bombarded with solicitations and exhortations to “fix it” before rates go sky-high. You are right to be concerned about the future but jumping into the nearest fixed rate mortgage could be a costly move.
Looking at recent ARM rate adjustments tells the story. Rates for many ARM borrowers have decreased lately. Before making any decision about refinancing to nail down a stable rate, get out your loan documents, find the Adjustable Rate Mortgage Rider, and look up the terms of your ARM. Locate the index that your rate is tied to (for example, the LIBOR, COFI, or T-Bill). The index is a published financial indicator and you should be able to look up its value easily online. This week’s 6-month LIBOR, for example, is 2.88%. Next, find the margin that your lender adds to the index to get your interest rate. If your loan is based on the 6-month LIBOR and carries a margin of 2.5%, your rate would be 5.38% if adjusting today.
OK, but what if a lender calls you up and says you can get a fixed loan at 6% right now? Should you go for it?
The Australia Federal Government commissioned investigation into mortgage fees. In their mortgage fee review results, it was discovered that the largest lending institutions charge the biggest fees.
To most consumers it’s not exactly clear what the entry and exit fees are, but currently the average mortgage is refinanced every three years and paying attention to these fees can save a lot of money. So will this review create competition for better consumer options? Well already some banks are offering mortgage products free of exit fees.
Will we get more of these results as these fees are disclosed to consumers?
The significant thing in mortgages this week wasn’t what had changed, but what had stayed the same. 30-year mortgage rates posted their fourth consecutive weekly reading within a range of only 0.03%.Â
This stability was not because of a lack in economic news. Among the prominent developments:
High-ranking government officials, including Treasury Secretary Henry Paulson, continue to issue increasingly more somber pronouncements about the economy
Meanwhile Congress and the White House continued to debate over how far mortgage relief measures should go
Indeed, considering the amount of economic news, the fact that mortgage rates remained unchanged was not because there were no new developments, but more because conflicting developments essentially fought to a standstill.
For mortgage shoppers, this meant good news — additional time to think and act while mortgage rates are still at uncommonly low levels.Â
This move is part of a growing patchwork quilt of government economic initiatives which have emerged since year-end. That quilt includes:
Three separate Federal Reserve rate cuts
A sweeping tax rebate program
Extraordinary measures to provide liquidity to financial institutions
The maddening thing about economic policy moves is that it will take months to know how they will pan out. However, while Washington and the heartland wait to see what the results of these stimulative measures will be, one group that should not be waiting is mortgage shoppers. For anyone looking to refinance, and especially for prospective home buyers, the best time to act might be the present.
