Many options for ARMs borrowers
Adjustable-rate mortgages
or ARMs became very popular during the housing boom, because they allowed
people to get into houses that they normally couldn’t with a more
traditional loan.
The thing with ARMs though is that they start out with low interest rates
and monthly payments, and then the rates “adjust” according
to current market conditions, leaving people with much higher payments then
they are used to paying.
ARMs are a good option for many people, but for borrowers who didn’t
know what they were getting themselves into, the results can be disastrous.
With this being said, many of these loans are set to adjust this year, so
a plethora of borrowers have to reassess their financial
situation and analyze their options for dealing with their ARM.
An October 7, 2006 article by Danielle Reed of The Wall Street Journal,
“ARMs control for borrowers,” looks into the many options made
available for homeowners with ARMs.
“A large number of mortgage borrowers will see their adjustable-rate
loans shift from fixed rates to floating rates in the next year. But
with long-term mortgage rates significantly lower now than a few months
ago, opportunities for refinancing those soon-to-be floating-rate loans
are plentiful.”
“‘As long as interest
rates stay low...many borrowers will be able to adjust’ to their new
situation by refinancing, says Nela Richardson, senior economist with mortgage
giant Freddie Mac in Washington. The rate on a 30-year fixed-rate mortgage
averaged 6.3% in the week ended Oct. 5, down from a 2006 high of 6.8% in
July and the lowest level since March, according to Freddie Mac.”
These facts reflect that refinancing has already seen an increase, due to
lower rates, and people becoming increasingly concerned about their current
situation.
Refinancing activity has increased by 17.5 percent, which is the highest
since October 2005, according to the Mortgage Bankers Association. This
is good since it shows that people are trying to deal with their potentially
dire situation before it gets too bad.
“‘We are definitely
seeing an uptick in volume’ of loan applications because of increased
refinancing, says Greg Gwizdz, national sales manager at Wells Fargo Home
Mortgage, a unit of Wells Fargo & Co.”
“Most customers
with loans in the $100,000-to-$200,000 range are choosing to refinance into
fixed-rate loans, says Mr. Gwizdz, while those with larger mortgages --
say, more than $400,000 -- are sometimes still going with ARMs. Across all
loan sizes, he says, the 30-year fixed-rate mortgage with a 10-year interest-only
period is growing more popular.”
Some lenders are even taking this a step further and are not waiting for
their customers to contact them, but instead notifying their borrowers of
refinancing
options through emails and direct mailings. This could be one step in helping
to stop a potential wave of foreclosures in the near future, because people
didn’t understand their loans. “Many lenders and brokers aren't
waiting for borrowers to call them. Wells Fargo is going into its customer
database and selectively mailing out "attractive" refinance offers,
says Mr. Gwizdz. Wells Fargo has also set up a "mortgage
rate monitor" on its Web site that sends free adjustable-rate-mortgage
alerts by email to people who sign up.”
“Chase Home Mortgage,
a unit of J.P. Morgan Chase & Co., is using direct mail to target consumers
who have option ARMs from other lenders, encouraging them to refinance,
says Tim Foley, senior vice president of retail sales. Chase is also encouraging
its loan officers to talk to customers about refinancing options.”
So if you find yourself in an ARM and you are worried about your financial
future, there are many options available to you. Banks do not like or want
to foreclose on properties, so they will most likely be able to work something
out for you and your family.
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