Understanding Adjustable Rate Mortgages
You need to have a good understanding of adjustable rate mortgages before you think about committing yourself to it. Otherwise, it could be a serious financial mistake. The reason being is that adjustable rate mortgages can keep going up as interest rates rises. You have no protection against rising interest rates and inflation. How would you feel if your monthly mortgage suddenly went from $1,500 a month to $1,800 the next month? What if it went up again in a few months? A fixed loan for 15 or 30 years may be more expensive initially but your interest rate is locked in for that time period. Youll sleep better at night knowing that your mortgage payments will stay the same. Is it possible to refinance to get a fixed interest loan when interest rates start rising then? Its possible but with the increase in your monthly mortgage payments you may be struggling to keep up and your credit score might not be as good as it used to be. Also, you might have been tempted with all the home equity loans and second mortgages that your house is valued at less than everything you owe. Its a likely chance that you may not be able to refinance when its crunch time. If you are currently in this situation there arent any quick fixes Im afraid. You should look at all the facts and think about your situation. Whats the total amount you owe on your first, second, third mortgages? Any liens or back taxes on it? How much do you think the house is worth compared to similar ones in the neighborhood? How is your credit now? How stable is your job? Do you plan to live there for another 5-10 years? Talk to a mortgage specialist and have them look at your situation and try to see if you can get into a fixed interest loan as soon as possible. If you are planning to sell soon, then you may not have to worry about it. If you have an adjustable rate mortgage loan and you plan to rent your house out as an investment property this is a grave mistake. I dont think the rent increases will be able to keep up with the increase in your mortgage payments when interest rates keep going up. If you live in California, make sure you have adequate homeowners insurance because of the mudslides and earthquakes. I read an article that majority of people dont have earthquake coverage in their policies and may be underinsured. If you choose to be underinsured in your homeowners insurance policy make sure you have savings and investments as a buffer in case your home gets damaged and requires repairs. Hopefully, after reading this you will fully research adjustable rate mortgages to gain a better understanding before signing a loan agreement.
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