Last week the Federal Reserve raised short term interest rates another quarter of a percentage point in its never-ending and often losing battle against inflation. This is supposed to slow the economy which will in turn, keep inflation at bay.
Some in the market believe the Fed is through mucking around with interest rates; after all, this strategy doesn’t seem to be working. Meanwhile, mortgage interest rates have resumed their upward spiral where they left off last year before the holidays.
The bad news is the Federal Reserve didn?t come out and say this was the end of the rate hikes. They did say some more mucking around may be coming. For homeowners, this means more interest rate hikes and rising monthly payments for those with Adjustable Rate Mortgages (ARMs).
If you are one of the millions of homeowners in the U.S. with an ARM loan, or worse yet, an interest only or option loan, you need to be thinking about refinancing your mortgage now. Fixed interest rate mortgages are the safest place to be for your families finances.
Most ARM loans adjust their interest rates every 12 months. The rate you will pay after the adjustment depends on the underlying interest rate, plus the lenders premium tacked on top. The underlying interest rate is often tied to something like the yield on US T-bills. This is why the recent interest rate hikes have a negative effect on your wallet’s well-being.
Deciding whether it would be in your best interest to refinance your mortgage depends on whether your payments for the new mortgage will save you enough to make up for the expense you pay to refinance. It is very difficult to determine the savings when opting for an adjustable rate mortgage as you never know what your payment will be 12 months down the road.
Play it safe: Refinance with a fixed rate, traditional mortgage before rates go up again.