I keep reading articles about ARM’s. Man. As interest rates climb, I can’t help but think that many, many people are going to find themselves in trouble. Even if they aren’t in trouble, they will most likely be seeing more and more of their income go towards mortgage interest.
With inflationary fears floating around, it isn’t hard to imagine rates going even higher. I’m eating up the interest rate hikes. I’ve got a fixed rate mortgage, no consumer debt and have money in the bank earning me interest. Not a bad situation to be in as the rates go up.
Other articles I’ve read talk about how little disposable income many people have in their budgets. I’m sure a percentage of these people with no disposable income probably have adjustable rate mortgages. That’s a scary proposition. Basically, to stay in your house, you have got to sacrifice other expenses. Hopefully you have some to sacrifice.
So, how about a little feedback. I’ve got a 30 year fixed at 5.75%. What do you have, and if it’s an ARM, have you thought about how you will be affected?
5/1 ARM at below 5%. Not really worried, because I don’t expect to be in my home for 5 years at all. By that time, I would have moved somewhere else.
We had a 30 year at 5.75%, but we moved June 1 and are now in a 30 year, 6.375% loan.
Our home 15 year 4.875% is actually lower than our savings account 5.15%. It gives me a whole new perspective. Since we bought our house, 2001 saving account rates have been so low. I wanted to pay off the house in two years-just to know its paid off, but for now we’ll probably throw all the extra into savings. ( I’m getting greedy or smarter-I’m not sure which ) PS We never made enough (or paid enough) to deduct the interest from taxes so I can’t take that into consideration.
Mine is a 15 year fixed at 5.5%. Because the loan amount was relatively low, the interest deduction isn’t much these days. Within a few years, it will probably be no help at all, tax-wise.
You can still get lower mortgage rate by paying down points
“With inflationary fears floating around, it isn’t hard to imagine rates going even higher.”
I totally agree!
I have a 340K investment property loan at 6.95% interest only, fixed for 5 years
And a 480K mortgage on our house at a variable rate that is currently 6.89% (it went up 0.25% in May) which will go up by 0.25% in a couple of months (our central bank just raised rates 0.25%).
BUT, we’re probably at the top end of an interest rate increase phase, so the variable rate will probably still be cheaper than the fixed rate over the 5 year period.
Banks aren’t stupid – they work out the likely rate that will apply over the fixed term and then add a sizable margin on top of that. Paying an extra 0.25%-0.50% over a 30 year period on a home loan will cost you a fortune!
It’s just like investing in a safe CD vs. investing in a diversified stock portfolio or index fund – you will probably end up with more reward for taking on more risk – but you’ve got to be comfortable taking on the risk, and have a sensible financial PLAN ie. build in allowances for the range of likely outcomes, such as your variable rate loan going up 0.5% (or more).