Short-Term Interest Rates on the Rise; Adjustable Rate Mortgage Holders Prepare for Increase in Rate

Interest rates are on the rise and many home owners who have adjustable rate mortgages may see increases in their forthcoming annual adjustments.

Federal Reserve Chairman Alan Greenspan made it clear in 2004 that the Federal Reserve would be increasing short-term interest rates at a "measured pace." With the US Dollar at its weakest point in seven years, oil prices unstable and the evaluation of other economic indicators, the Fed Funds Rate was hiked seven times from 1.0% to 2.75% since June 2004 in an effort to curb inflation. Some economists believe it won't stop until the Fed Fund Rate hits 4.0%.

Consumers with revolving debt accounts tied to the prime rate have seen the effect through rising interest rate charges, as the prime rate always rides 3% above the current Fed Funds Rate.

Mortgage interest rates are affected indirectly by these changes. An increase in the Fed Funds Rate has an impact on financial markets as a whole, but mortgage rates may go up or down based on the perception investors have of current economic statistics and their reaction to the Federal Reserve's after-meeting statements.

In general, when economic data indicates we have a slow-down occurring in our economy, investors tend to sell off stocks and reallocate that money to the safe haven of bonds and mortgage-backed securities. The purchase of mortgage-backed securities drives interest rates down. When economic data says there is growth in the economy, the stock market typically rallies and mortgage-backed securities sell off to fuel that stock market rally. This drives mortgage interest rates up.

Our current market reflects the reaction of investors reading between the lines on comments made by the Fed, and mortgage interest rates are going up. This will have an affect on home owners with adjustable rate mortgages (ARMs) tied to indexes that are based on short-term interest rates. This includes the 11th District Cost of Funds, 12-Month Treasury Average (MTA), London Inter Bank Offering Rates (LIBOR) and others.

This doesn't mean that everyone with an adjustable mortgage is in trouble right away. Some indexes are more volatile than others. COFI moves much slower than other adjustable rate indexes, while the LIBOR fluctuates with more volatility. But remember, when an ARM adjusts, the new interest rate is a sum of the borrower's fixed margin plus the current rate of the index the mortgage is tied to.

Consumers who foresee paying an interest rate that is significantly higher may want to consider refinancing to take advantage of the stability of a fixed rate mortgage.

This is also a good time for borrowers who started out in an adjustable rate loan due to a poor credit score to transition into a fixed rate loan if they can. Once a track record of making mortgage payments on time and in full has been established, this should have a positive effect on the credit score and there's a good chance the borrower may now qualify for a loan with a lower interest rate.

As with any decision to refinance, it is important to take the terms of the existing loan, the cost of the new loan, and the borrower's long-term needs into consideration. A qualified mortgage professional should help weigh out the options by providing a clear assessment of available loan programs for the consumer.

Mical Johnson is affiliated with Rock Financial, Inc., a Licensed Correspondent Mortgage Lender, Florida Department of Finance. Free consultation and a 10-Year History of ARM Indexes are available by calling. You my also obtain a free copy of Mr. Johnson's Home Buyer Handbook by contacting him at http://www.TampaMortgageGuy.com. He is also a contributing author at http://www.Debt-Free-Personal-Finance.com

---

New Home Loan - 3 Tips To Speed Up The Mortgage Loan Approval Process

Imagine this: you've found the perfect house, and feel lucky... Read More

Bad Credit Home Loans - Dealing With Bad Credit Mortgage Companies Online

Dealing with mortgage companies online can enable you to get... Read More

Home Mortgage Loan Information - Which Type of Home Loan is Best For You?

If you are considering buying a home, then you may... Read More

Rates May Be Rising: Mortgage And Refinancing Preparation Made Simple For You

Buying a home is probably the single largest investment most... Read More

First Time Home Buyer Loans Made Easy

When it comes to firsttime home buyer loans, a little... Read More

Home Equity Loans Company ? 7 Key Questions to Help You Choose One

Choosing the right home equity loan can be tricky; you... Read More

Mortgage Tips For The Frantic

It is a curious fact of human nature that people... Read More

Sound Financial Standing Entails Capital Raising Remortgage

Raising capital is integral for growth and expansion of an... Read More

What is a Self-Employed Mortgage?

Self-employed mortgages, as the term implies are mortgages designed for... Read More

How to Get Your Home Mortgage Loan

If you are thinking of purchasing a new home soon... Read More

New Home Loan - Understand The Various Types Of Mortgage Lenders

So, you've decided to buy a house, and you're ready... Read More

Mortgage Brokers or Banks: Which is Right For You?

When you're looking for a home loan, you might work... Read More

Mortgages After Bankruptcy: Easier Than You Would Expect

Give yourself time to rebound. Whether you had to turn... Read More

How To Save Money On Your Mortgage

Obtaining a home loan is arguably the most expensive transaction... Read More

Mortgage Info You Can Actually Understand!

This is a great time to Refinance Your Home or... Read More

Buy a Home With a Government Grant? Avoid this Scam

If you watch enough late night television, you'll see advertisements... Read More

Know Your Mortgage Fees, and Youll Never Pay Too Much for Your Loan

If you buy new windows, you'll not only pay for... Read More

Why a Mortgage Professional Beats a Banker Every Time -- The Story Tells It All

The best way to explain why a mortgage professional is... Read More

Home or Investment Property Equity: Be Sure the Bank Gives You All that You Deserve

Home equity is your own personal money machine. If you... Read More

Are Biweekly Mortgages Really Worthwhile?

You may have heard people, especially mortgage lenders, extolling the... Read More

5 Things In Selecting The Best Mortgage - You Should Know

Your goal is not only to find the best rates... Read More

Home Equity Line of Credit or Second Mortgage Loan Online - Things To Do With Your Homes Equity

If you are wanting to get a home equity loan,... Read More

Escrow Accounts, Do You Absolutely Need One?

With escrow accounts the money for your home insurance and... Read More

Understanding a UK Commercial Mortgage

In many ways a commercial mortgage is just like a... Read More

Home Equity Loans ? Research Your Lender Carefully

Real estate prices are rising across the country, and Americans... Read More

UK Mortages: A Guide Through The Maze

Types of UK MortgagesYou may be wasting your money with... Read More

Mortgage Refinancing - Does Size Matter After All?

Hopefully your ego has never had to experience the words,... Read More

Some of the Available Loan Types

There are many mortgage products available on the market today.... Read More

Lesser Known Facts About Home Equity Loans

Refinancing your debt via a home equity loan shifts your... Read More

Mortgage Information for the First Time Homebuyer

Inflation in the United States is increasing rapidly and home... Read More

Mortgage Lead and Mortgage Leads

A mortgage lead is an exciting thing because you are... Read More

What is a Remortgage?

A remortgage is changing your mortgage without moving your home.... Read More

Financial Rebirth Through Remortgage

Seldom in ones life do we get a chance to... Read More