AgentMortgage

Preparing for payment shock

How ARM borrowers can time market to their advantage

Many mortgage borrowers with adjustable-rate mortgages (ARMs) on which the rate has adjusted within recent years are currently enjoying extremely low interest rates. This reflects the unusually low levels of the rate indexes used by most ARMs. But these low rates are accompanied by high anxiety, because of widespread expectations that rates will rise. For example, the Treasury one-year constant maturity series, which is a widely used index, averaged 0.35 percent in January. This means that the rate on an ARM with a 2.25 percent margin that uses this index and adjusted in January is now 2.6 percent.Switching to a fixed-rate mortgage (FRM) in today's market, even if the borrower commands the best terms, will about double the rate. ARM borrowers don't want to double their rate before they have to, but neither do they want to be caught flat-footed by a rate increase that materializes before they can make a move. The stakes are high. The borrower with the 2.6 percent ARM, who wa...

Comments