Adjustable Rate Mortgages: This Home Mortgage Loan May Not Be For The Weak At Heart
Saturday, May 1st, 2010I heard the news about another interest rate hike and thought it was about time to look into refinancing my mortgage. I contacted my mortgage company first.
“I am interested in a fixed mortgage rate.” I said.
“May I ask why that is?” The broker asked politely.
“I don’t want to deal with the risk of rising interest rates. At my age, I cannot afford the risk.”
“Looking at your last ten years of history, you have done pretty well with the adjustable rate. In fact, you had paid less in interest than most people with a fixed loan. May I suggest that we look at some adjustable rates, which are even less than the rate you’re paying and with caps you don’t have to worry about the interest rate hikes. I think we can save you a few hundred dollars off your monthly payment.”
At this point the broker took a breather so that I can say, “No thank you. I am only interested in a fixed rate mortgages.” “I don’t understand. Are you not interested in saving money?” He asked before launching into a lecture that had a mix of economy 101, budgeting 1, a dash of fortune telling and a healthy and totally unrealistic optimism of future trend in interest rates.
When he was done I explained to him that I recall the 18%-19% interest on mortgage loans in the early 1980’s that he seemed too young to remember. I pointed out that on a $100,000 loan, the 18% interest is $1,500 per month on the mortgage interest alone. If you have a $200,000 loan the interest alone would be a back-breaking payment of $3,000 per month.
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