X

See what's happening with home values in more than 400 metropolitan areas with HSH's Home Value Tracker, just updated though the second quarter of 2022.

See what's happening with home values in more than 400 metropolitan areas with HSH's Home Value Tracker, just updated though the second quarter of 2022.

Worried about ARM Reset

Q: My wife and I have a five-year fixed rate that will turn into an adjustable rate at the end of May. When we bought our house we put 20% down and never thought we would have to worry about equity, but with values dropping we're worried. My wife just finished college and we both have good jobs and we've never been late on a mortgage payment. But because our credit scores are very good, and not much if any equity, we're scared.

A: If you ARM is going to reset this spring, you have two options. One, you can look for a refinance to a new long-term fixed rate product. If you don't have much equity, you can look into a FHA-backed loan, which will only require a 3.5% equity stake in the property. There will of course be costs for the refinance plus fees to get into the FHA insurance pool, but your concerns about rates and such will be covered. Two, you can let your rate adjust; the new rate will very likely be below what you have been paying, at least for a year (and very possibly longer). You could use any savings to build a cushion against future rate increases, or perhaps better, pay down your loan to build equity a little quicker while also making a payment increase in the future somewhat smaller.

Good jobs and good credit will see you through a lot of troubles. The fluctuating value of your home is beyond your control, and even if the mortgage ends up being more than the market value of the home (you are "underwater") you won't encounter any trouble as long as you keep making your payments. Should you need to sell, you might encounter a different set of trouble, but this doesn't seem to be an immediate concern for you.

Ask the expert
Keith Gumbinger
Keith Gumbinger
Mortgage Expert
Vice President, HSH.com
About Keith: Mortgage market observer and analyst with 35 years experience... (more)
Please enter a question.
Please enter name.
Please enter email.
Captcha code invalid
Q: How are mortgage interest rates determined?
AUG 18, 2022
A:

Mortgage rates fluctuate from day to day, depending on a number of factors related to the economy and to choices made by investors. While some mortgage money comes from deposits held by banks and credit unions, most of the funds for borrowers come from investors in capital markets.

Read More
Q: Will today's stock market influence tomorrow's mortgage rates?
AUG 16, 2022
A:

Mortgage rates are influenced by a variety of factors, rather than moving in lockstep with any one economic indicator. The stock market rises and falls for a wide variety of reasons, including global, economic and political issues, but as a broad rule of thumb, a rising stock market indicates optimism among investors about the economy.

Read More
Q: Should I pay private mortgage insurance out of pocket or finance the cost?
AUG 12, 2022
A:

For the most part, this is a discussion about time. You should compare the total costs of the difference in the two interest rates over your given time horizon.

Read More
Add to Homescreen?
X
X
Install this web app on your phone :tap and then Add to homescreen