There is a unique interest rate phenomena taking place that deserves considerable attention if you are currently paying on an adjustable rate mortgage.
Those of us who have been joyfully riding the wave of low adjustable rate mortgages for the last few years are starting to hit rough waters. If you haven't been examining your monthly statements, then you may not have noticed your rate has taken a substantial jump over the last 12 months.
Homeowners that have taken advantage of adjustables with payment caps (the "1 percent" option arm) may not realize their interest expense has spiked until it is too late. In this popular type of mortgage loan, your minimum payment may not adjust sufficiently to cover the rising short- term interest rate, so your real cost of borrowing is effectively concealed.
These borrowers have really benefited by record low rates for the past few years but listen up because the proverbial "Fat Lady" may be about to sing about your home mortgage.
Any regular reader of this column knows how adamantly I profess practicing mortgage management. The current rate climate is a perfect example of why it is so important.
There are two conditions that seem to stimulate the demand for adjustable rate mortgages: high rates that are expected to drop and low rates that are expected to be stable. The current environment of low rates that are expected to rise drives borrowers back to the security of fixed rate mortgages.
In the last few months the yield curve has exhibited an "inversion" which means that long term fixed rates have dropped below short-term adjustable rates.
It's likely you have done very well with your adjustable rate mortgage over the last five years so, don't blow it now, Bubba!
Have a professional analyze your indebtedness, goals and anticipated needs, as part of regular mortgage management. Determine if you can benefit by converting to a fixed rate before it is too late. Don't risk paying back all the hard-earned money you've saved with your adjustable rate mortgage.
Daniel J. Poulos is the president of Elite Lending, at 1232 W. Indiantown Road, Jupiter in the Shoppes of Jupiter Creek. For additional information and assistance with any home or commercial financing, call (561) 745-5575 or in Port St. Lucie, (772) 335-5556 at 1814 SE Port St. Lucie Blvd., Port St. Lucie.