Refinancing an ARM For a Fixed Rate Loan: A Way to Avoid Foreclosure?

Posted in Repo Homes, August 31st, 2006 |

One of the most common topics discussed both on this web log and in the general real estate sector these days is the effect of Adjustable Rate Mortgages on the rising national foreclosure rate. As explained previously, in the past years many investors and homebuyers sought to capitalize on the thriving real estate market by buying up anything they could in hopes of being able to sell it for a profit. The best loan to use for this purpose is an ARM, given that it has very low initial costs, making it perfect for those who don’t intend to hang onto their property very long.

As the market has cooled off considerably, many people are now stuck with the homes they have purchased with an ARM. While the ARM had low initial costs and a standard fixed-rate for the first year since its inception, now these owners who are unable to sell are stuck with the rapidly rising interest rates, leading to foreclosure and/or financial stress for millions of Americans.

However, we have recently seen many homeowners taking steps to make sure they don’t get in any deeper as they do. With interest rates rising and some analysts predicting rates as high as ten percent within a few years, many are looking to refinance for a comparatively low fixed rate loan while they still can.

Although interest rates offered on fixed loans may be higher than they were when the homeowner first bought their home, many are hoping to simply secure a stable payment before it gets any higher. A small hike in interest rate can mean a drastic hike in mortgage payments, especially for those already struggling to meet their current payment.

This is an attractive option for anyone who has invested and finds themselves stuck with payments. While it may require some higher costs to start, it might be wise in the long run, considering the market does not seem to be improving in terms of home values or housing supply anytime soon.