Fixed Rate Mortgages Trump Adjustables

Fixed Rate Mortgages Trump Adjustables


On the surface, adjustable (variable) rate mortgages (ARMs) look like a better deal, particularly as these loans allow adjustable rate mortgagesbuyers to afford a larger home and/or receive a lower interest rate on the amount borrowed. Compared to a fixed rate mortgage, ARMs can look pretty decent, but that is only on the surface.

ARMs At Fault — Sort Of

Dig a little deeper and you quickly realize that ARMs are behind the current mortgage crisis. Certainly, some homeowners should never had been qualified for a mortgage in the first place given their iffy financial situation, but for many other people selecting an ARM was a problem for them too. Especially when the first wave of resets (adjustments) kicked in.

Falling Fixed-Rate 30 Year Mortgages

Some homeowners are alarmed that their new, higher mortgage payments is making it difficult for them to keep up. That $2200 monthly payment is suddenly approaching $2700, putting further strain on households already pushed to the limit. Refinancing is an option, something I will cover below.

The recent two-step drop in the benchmark Fed interest rate from 4.25 to 3 percent is a sign that the government is worried about resetting mortgages too and the impact that a rash of foreclosures would have on the economy.

Although mortgage rates don’t necessarily correspond exactly to a drop in the Fed rate (instead, those rates are pegged to long-term bonds) every indication seems to show that a further drop in mortgage interest rates will still happen. How much though is not known.

Your Refinancing Window

Now is the time for all homeowners faced with the prospect of a nasty mortgage interest rate reset to consider refinancing their homes. No one knows how long this refinancing window will stay open or whether mortgage rates will drop much lower, therefore it is imperative if you are seeking relief from your current ARM to consider what it takes to qualify for a new mortgage today.

The longer you delay, the increased likelihood is that you will miss out on a special opportunity. Some homeowners may be waiting for government relief, which may or may not come, but to delay too long could mean that the refinancing window has been shut.

So, how do fixed rate mortgages trump adjustable rate mortgages? That’s easy: they give consumers a predictable, stable monthly payment amount each month for the life of the loan.

Sounds reasonable, doesn’t it?


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About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Matt's Musings", his personal blog. Matt covers campus, consumer, business and financial topics on various websites and blogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".