Interest Rates are Rising - Is It Time for a Fix?
Adjustable Rate Mortgage Loan Interest Rates on the Rise
On November 15, 2005, one-year adjustable rate mortgage loans rose from the previous week’s 5.12 percent to 5.20. Just one year ago, one-year ARMs averaged 4.17 percent. That’s a big leap, and makes the difference between the 30-year fixed rate mortgage loan and the one-year ARM the narrowest it’s been since November of 2001.*
If you currently have an adjustable rate mortgage loan, you know the interest rate changes from year to year and it reflects the current interest rate environment. If interest rates go down, your rate drops, too... and if they go up, so does the adjustable rate on your mortgage.
According to Bear Stearns, a leading global investment banking, securities and trading and brokerage firm, rates will reset over the next 12 months on about $185 billion in adjustable-rate mortgage loans, and about $141 billion the year after that.
When ARMs adjust, the rate usually moves to match the prevailing market rate, though generally there are limits on how high rates can rise.
So if the trend seems to be a rising-rate environment, what can you do? Consider a mortgage refinance loan, and lock in on a 30-year fixed rate mortgage loan. But if you’d like to keep your payments low, you need to hurry, because while still low by historical standards, the average 30-year fixed rate mortgage loan is at about 6.28 percent, its highest level in more than two years.*
How much will your monthly payment be if you refinance your mortgage now? Visit the GetSmart Resources section of our Web site, where you’ll find handy calculators and more information on mortgage refinance loans.
Credit Card Rates Going Up, and New Banking Guidelines Will Make Your Minimum Monthly Payments Higher
Mortgage loans aren’t the only financial products affected by rising interest rates. Credit card users are about to get hit with a double-punch; higher rates, and a bigger minimum monthly payment.
New banking guidelines could actually double the amount of your minimum monthly payment. In 2003, the Federal Office of the Comptroller of the Currency, which regulates national banks, instructed banks that issue credit cards to increase minimum monthly payments by at least 1%, which will go directly toward paying down a credit card’s principal.
While this might be good for consumers in the long run by saving them a lot of money in interest, in the short term, coming up with a larger, minimum monthly payment could wreak havoc with a family’s budget.
If you owe a significant amount of money in credit card debt, you might consider paying off those cards with a home equity loan or line of credit. Even with rates going up, a HELOC interest rate is still lower than the rate on most credit cards, and the interest you pay may be tax deductible (consult your tax advisor). Or, if you want something a little less risky, a home equity loan, with its fixed interest rate, might be just the ticket.
A home equity loan, or a home equity line of credit - whatever you decide, be careful. If you tie the debt to your house, be sure to make your payments, or you risk losing your home.
*SOURCE: Freddie Mac, November 28, 2005.
Get Started Now!
- Check Your Credit Report & Credit Score now!
- Start a Loan Request
- Sign up for our News Feeds
- Have Questions? Call 1-800-GET-SMART (1-800-438-7627)
