Thread: Have an adjustable rate mortgage? Look out!

Homeowners scramble to refinance as rates go through the roof

NEWTON, Mass. - In Massachusetts, where home sales dropped 12 percent this spring, the housing and mortgage markets are on ice in this hot summer.

But keeping mortgage broker John Battaglia busy are calls from some homeowners whose mortgages are about to shoot up.

"These customers could have rate increases, maybe not only this change date, but maybe a year from now," he says.

Why? They have adjustable rate mortgages, also called ARMs. During the boom, the low adjustable rates made it easy for people to buy homes — some they couldn't afford otherwise — but now many of those rates are going up.

So Marc Anderson is switching to a fixed-rate mortgage for his Phoenix home.

"I want something that I know is going to be there five years from now," he says. "I don't want my interest rate or payments to change in anyway."

So how much could an increase hurt?

Let's look at a three-year ARM on a $200,000 mortgage. Taken out in 2003 at a rate of four percent, the monthly payment was $955. Now, the rate could jump as high as 7.6 percent, boosting the payment to $1,375, a 44 percent increase.

And it's not just mortgage rates. Homeowners are getting hit from all sides. Rising interest rates mean bigger credit card bills, higher energy prices mean increased costs to heat and cool your home, and the cost of gasoline makes it expensive to drive to and from it.

Rick Sharga tracks foreclosures. His firm saw a 25 percent increase this spring. He says this wave of resets is the wild card in housing.

"In a worse case scenario, you could have so many properties into foreclosure that it depresses the value of homes on the market," he says.

And that would put the once sizzling housing markets into a deep freeze.

http://www.msnbc.msn.com/id/14156321/

Ya.....and for areas like here there isn't much to scale down too. These homes they are building are far too expensive for most to be able to maintain with too much change. I've noticed an increase in for sale signs. Taxes are so high, traffic is so bad and people are increasingly wanting to get out of here. Americans like some breathing room. Sardines we're not.

I hear ya CB. Roanoke hasn't been effected too bad yet. However NVA(Wash DC) is a different story. This once sizzling market is now not even lukewarm. Good friend of mine has a nice house in an ideal location. Walking distance to the metro. House has been on the market since late March. They have had no offers and only one looker. Last year it would have sold in a matter of weeks and generally for more then the asking price.

We bought our home, using a no-doc 15 year mortgage in 2001, at a locked in interest rate of 4.85, which was relatively high at the time. Of course it didn't take long before we were beseiged with offers to refinance when, shortly after our purchase, the home values in our area went through the roof! It didnt take long to figure out that ALL of their offers to lower our interest rate to 2-3% were contingent upon "borrowing" from our equity bonanza.

Needless to say, we never bit, and today we are THRILLED with our 4.85 interest rate!

Originally Posted by AlturaCt

I hear ya CB. Roanoke hasn't been effected too bad yet. However NVA(Wash DC) is a different story. This once sizzling market is now not even lukewarm. Good friend of mine has a nice house in an ideal location. Walking distance to the metro. House has been on the market since late March. They have had no offers and only one looker. Last year it would have sold in a matter of weeks and generally for more then the asking price.

That is so true! We sold our townhouse last May after 4 days on the market and got $8,000 over the asking price We lived in Chantilly. We moved to the suburbs of Pittsburgh last July

GP Great rate!



SB Timing is everything!

Did you live in NVA long? I grew up in Fairfax.

http://www.marketwatch.com

MORTGAGES
U.S. mortgage rates fall a second week
Rates predicted to fluctuate under 7% for remainder of the year
By Amy Hoak, MarketWatch
Last Update: 11:49 AM ET Aug 3, 2006


CHICAGO (MarketWatch) -- A major indicator hinted that inflation is less of a concern, prompting mortgage rates to fall for the second week in a row in Freddie Mac's weekly survey, released on Thursday.

"Second-quarter gross domestic product came in weaker than the market had expected. This means inflation is less of a threat, and that translates into lower mortgage rates," Frank Nothaft, Freddie Mac chief economist, said in a news release.

The 30-year fixed-rate mortgage averaged 6.63% for the week ending Wednesday, down from last week's 6.72% average, according to the survey. The 30-year averaged 5.82% a year ago. The 15-year fixed-rate mortgage averaged 6.27% for the week, down from 6.34%. The 15-year averaged 5.38% a year ago.

Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 6.27%, down from 6.35% average. The hybrid averaged 5.30% a year ago. One-year Treasury-indexed ARMs averaged 5.69%, down last week's 5.78% average. The ARM averaged 4.47% a year ago.

The 30-year and 15-year fixed loans required payment of an average 0.3 point to obtain the interest rate, the 5-year ARM required an average 0.4 point and the 1-year ARM required an average 0.7 point. A point is 1% of the loan amount, charged as prepaid interest.

But the rate-increase respite may not last long, Nothaft predicted.
"Although lower rates are a welcome sight, we still feel that the 30-year fixed-rate mortgage will drift up and down somewhat over the next few months, but will average less than 7% for the year."

A similar survey conducted by the Mortgage Bankers Association reported the average interest rate for 30-year fixed-rate mortgages decreased to 6.62% from 6.69% for the week ending July 28. Fifteen-year fixed-rate mortgages decreased to 6.28% from 6.31%, and 1-year ARMs decreased to 6.18% from 6.25%.

That survey also reported a seasonally adjusted 1.2% decrease in mortgage loan application -- putting the volume of applications at its lowest since May 2002. See related story.
The MBA survey covers approximately 50% of all U.S. retail residential mortgage originations.