How variable loans help paying off mortgage housePosted by Nick Niesen on October 29th, 2010 In the recent weeks many people is refinancing with new adjustable rates mortgages that keep monthly payments low. By the time the loan rate goes up, your income will have increased enough to cover the higher payments. For borrowers, the bet was that interest rates would remain low. Now the first big wave of the loan boom is cresting more than $300 billion worth of adjustable-rate mortgages, or about 5% of all outstanding mortgage debt. For instance, a typical borrower with a $200,000 ARM could see his monthly payments increase neraly 25%, when the ARM adjusts from 4.5 percent to 6.5 percent. In total dollars, that is an increase from $ 1013 a month to $ 1254. So far, the number of borrowers refinancing this way is relatively small but mortgage industry official expect the numbers will surge next 2007. In doing so,these borrowers are pushing out any eventual shock of higher payments by another two or three years, if not longer. This refinancing represents also a doubling down on a bet that housing prices will continue to rise; if the value of the home falls closer to the amount of the loan, that could affect the possibility of refinance, and may prompt the homeowner to either invest more the home or to sell it. Adjustable loans come in many forms; most have low and fixed rates initially, many also let borrowers pay only interest portion of debt or even less than that. After the introductory period ends, lenders require bigger payments and can raise interest rates. Like it? Share it!More by this author |