About three or four years ago, home loan interest rates fell to levels not seen since the 1960s. Millions of Americans took advantage of the low rates, which for 30-year fixed-rate loans were as low as 5%. For mortgages with rates that could change, they were even lower. Many buyers didn't take advantage of the chance to lock in at fixed rates. Instead, they took a chance on adjustable rate loans with lower payments so they could buy bigger or more expensive homes. At the time, that worked out well because the rates kept the monthly payments low. Unfortunately, the sixteen times that the Federal Reserve has raised interest rates since 2004 are about to have a big impact on these buyers. Many of them may find that they can no longer pay for the homes they live in.
Many loans with an adjustable interest rate are set up so that the interest rate stays the same for the first three years. After that, the interest rate changes often based on how the market is doing. The Big Adjustment is coming soon, and it won't be pretty for the millions of homeowners who gambled and took out these loans in 2003. As the rates change from the low rates of 2003 to the current rates, many homeowners will be shocked to see their monthly payments go up by as much as 50%. Some people won't mind, since they've known for a while that prices would go up. Others will suddenly find out they can't pay for a house they thought they could for a long time. This will almost certainly lead to a rise in the rate of foreclosures, which is already about 60% higher than it was last year. In Michigan, the rate is 90% higher than it was a year ago because hundreds of owners have stopped paying their mortgages.
What can you do if you have a loan with an adjustable rate that is about to get too expensive and could get even more expensive? Your best bet might be to refinance and get a fixed-rate loan for 15 or 30 years. If you do this, you can feel safe knowing that your payment won't change much over a long period of time, no matter what happens to interest rates in the market. If you can't make your loan payments right now and refinancing with a fixed-rate loan won't help, you may have to sell the property and move to something smaller and/or cheaper. You won't be by yourself.
