ARM Refinancing Options

Jumbo Mortgage Refinance Loans serves homeowners with fixed rate options for borrowers with adjustable rate mortgages (ARM's). We are an experienced mortgage lender located in Los Angeles, California who has been serving homeowners across the country for almost 20 years.

Our lending niche continues to provide borrowers with a multitude of refinance loans with better rates, higher loan to values and more exceptions than almost any other lender can offer.

  • Fixed Rate Purchase Mortgages
  • Option ARM Loans
  • Hybrid ARM's
  • Interest Only Refinancing
  • 100% Home Mortgages
  • Fixed Rate 80-20 Loans
  • FHA Home Purchase Options
  • Jumbo Mortgage Refinance
  • Non-Conforming Mortgage Loans

The low mortgage interest rate era may be coming to an end, if money markets pay attention to changes in two key indicators: world markets and U.S. productivity. Mortgage interest rates have recently reached 10-month highs, coming perilously close to the psychological hurdle of 7.00 % for benchmark 30-year, fixed-rate conventional loans. Since then rates have drifted down, but are still half a point higher than they were in May.

Homeowners with fixed-rate mortgages are happy because mortgage interest rates are still relatively low, and borrowers should be happy because the brief spike has dulled, but that doesn't mean interest rate hikes are over. So how should ARM holders feel? Whether they are in a subprime loan or a low ARM rate that doesn't reset for another two or three years, anyone with an ARM should be concerned. Every one-eighth of a point adds approximately $25 to a monthly mortgage payment, and there's no way to know how fast and how high interest rates can go. "The problem is that many ARMs due to reset this year will be doing so at a considerably higher interest rate," writes Brenda Spiering for LendingTree.com. "Not only have interest rates increased but the gap between fixed and adjustable rate mortgages has narrowed. Those who took out an ARM for less than 4 % back in 2003 could see their mortgage rate jump to 7.5 % after the adjustment."

What's driving higher mortgage interest rates? The Federal Reserve offers money to banks at a specific rate. The banks in turn lend money to commercial interests and to consumers at a higher interest rate, at which they can make a profit. To control inflation, or the cost of goods, the Central Bank may raise its rates to cool the economy down. When the economy is stagnant, the Federal Reserve lowers mortgage rates to stimulate investing. One of the reasons so many people got into ARMs during the first half of the decade was that they were so cheap. You could buy more homes with less money. But now, there's not as much as a gap between ARM rates and fixed rates, so taking out an adjustable rate loan is more of a risk. Also, the era of low interest rates may be over. For example, in Europe, the Bank of England just raised its short-term rates to 5.75 %, the highest rate in 6 years. Many economists believe that it will raise rates to 6.0 % by the end of the year. In March, 2007, inflation in England was 3.1 %, the highest in a decade, and the Brits have been trying to cool inflation by a series of rate hikes.

How does that impact the U.S. and mortgage interest rates? In order to attract investment in the U.S., our interest rates must be competitive, or investors will have no reason to put money in our banks. Almost certainly, interest rates will have to rise to match the rising interest rates of other nations and currencies. At least that's the theory. Another key indicator to look at is productivity. What the Federal Reserve Board considers when it eyes inflation is how much is being produced and what costs are offsetting that production. The average person might thing rising wages is a good thing, but to the Fed, rising wages are only good if production levels also rise.

The latest figures on productivity are that the U.S. is slightly down. According to the Bureau of Labor Statistics, wages rose, but productivity didn't rise. Further, a survey based on ADP payrolls data and employment in the U.S. private sector says jobs grew by 150,000 in June. That's the fastest rate in seven months. Both bits of news sent bond yields higher and prices tumbling, as it appears more certain that interest rates will rise. So for borrowers sitting on a generously low hybrid loan that isn't set to adjust for a few months or years, the question is - should you refinance?

It's hard to give up an 5 or 6 % rate and then pay for closing costs to refinance knowing your new fixed rate is going to be between 6.5, 7 %. At the same time, you have to weigh your peace of mind. Is it worth several thousand dollars in closing costs to refinance to a fixed-rate loan? Yes, if you consider the worst case scenario -- that interest rates could adjust all the way to your permanent cap of five % more. If you started at 4 %, that's 9 %.

Whether borrowers who currently have Hybrid ARM mortgages should refinance is a difficult question to address. If the interest rates fall again, then it makes a lot of sense, however if they continue to rise, then these borrowers will be forced to refinance into some loan when their payment begins to adjust. It is similar to timing the stock market...It is very difficult to time the interest rate market as well. "

He explains, "Would you rather lock in now at acceptable rates or would you float another day and get something worse? If you're comfortable in the current market -- after all, if you're shopping or refinancing you've been following mortgage rates for a few months now -- then lock. It also helps you sleep at night without wondering what the markets might do the next day. Heck, you can always refinance. With nearly $1.5 trillion in ARMs due to reset this year, there will be a significant amount of home refinancing happening.

If you presently have an adjustable rate mortgage consider the following:

  • You achieved your goal of getting a initial rate that is lower and reduces your monthly payment
  • Mortgage interest is usually tax deductible. Your monthly payments may be increasing but so to are your tax deductions.
  • You can refinance to a fixed-rate mortgage. If you're concerned interest rates may continue to rise and want the security of knowing your monthly payment won't rise to an unaffordable level, you have the option of refinancing to a fixed-rate loan.
  • Historically today's interest rates are still low. The chances of mortgage rates rising over the next few years are very good, so if you want to play it safe then you should refinance into a fixed rate loan now.
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