ARM Loans on Hot Seat

​The party appears to be over with all-time low rates ​. With rates increasing more than one full percent since the New Year, the trend has moved to an upswing. How will this affect fixed rates and adjustable-rate mortgages (ARM’s) moving forward?

Fixed rates have risen primarily due to Fed talk about rate hikes in 2022. Fixed rates are forward-looking in that they look at the long-term prospectus of markets. So, the Fed talk at the beginning of this year has resulted in fixed rates “pricing in” anticipated rate hikes next month, as well as several other hikes this year.

Therefore, if/when the Fed makes these moves, fixed rates won’t necessarily move up again in lockstep with Fed changes, since they’ve already accounted for some of this activity. However, most HELOC’s move instantly with Fed moves since its index is tied to the Fed Funds Rate. The same goes for most ARM loans in their adjustable period.

Who Needs to Be Concerned?
Those with ARM loans that have a fixed period shorter than the time they plan to be in their home may want to look at converting to a fixed rate, while fixed rates are still hovering just above all-time lows.

Those with HELOCs that have larger balances they won’t payoff soon, or with large balances relative to their 1st mortgage balances, may want to look at a consolidation loan.

Values are high and fixed rates are still attractive, so the moves mentioned above may make sense, pending current goals and timelines for homeowners.
 
As always, each situation is unique and should be planned accordingly. We’re happy to help with that planning! Contact us any time with questions about your individual situation.