This new year has seen a huge difference in the mortgage market, in that interest rates rising have affected the majority of clients who took out an ARM (adjustable rate mortgage) in order to save a few dollars a month, a couple of years ago. Today some of these people are now paying more a month than someone with a 30-year fixed-term mortgage.

There are two areas to negotiate when applying for a mortgage or re-finance this year:
1. Amortization - the length of time you require on a mortgage.
2. Interest rate - fixed or variable.

How Does A Variable Rate Mortgage Work?
Simply put - the rate adjusts.

The payments WILL change over time.

As a guiding rule, an ARM (adjustable rate mortgage) starts at a fixed rate for a year or two, depending on the lender, at quite a low rate as an incentive. After this time, the rate is adjusted yearly or every 6 months, depending on what was agreed, to reflect current rates. In a stable market, this product is a blessing and can save you, the client, a load of cash.

In the USA current market, it could be an impending disaster waiting to happen as clients watch interest rates rise and fall.

1st Thing to Do :-
Check your current mortgage packet and find the papers headed "Truth in Lending" and "Addendum to the Note".

Truth in Lending (or TIL as it is referred to) - You should find your worse case scenario, in that it will state the highest interest rate you could end up paying (in some cases), this could be as high as 18%.

Note - On this document it will advise if the consumer is locked into a time period, commonly called a pre-payment penalty. This can often be referred to as "your get out clause". If there is no pre-payment - RIGHT NOW - this is the perfect time to BREAK YOUR ARM.

If you do have a pre-payment penalty, once you know when that period ends, contact a reputable Mortgage Broker 2 months before that date, to start calculating a re-finance in your favour. You can re-finance prior to that date, but be aware that you WILL incur an interest penalty from the lender.

Going on the current market and using a broad spectrum, a 30 or 40 year fixed rate and term refinance looks pretty inviting.
For example, an 80% loan to value (LTV), rate and term, no cash out, FICO (credit score) 680 - a client could be looking at 6.5% interest rate with no pre payment penalty.
(These are hypothetical figures).
This would fix the monthly mortgage payment for the term of the whole loan.

Now you are opening up your options - if the interest rates drop dramatically after you have re-financed into a fixed term loan, since you have no pre-payment penalty, then you could re-finance again back down to the lower rate, again, for the whole term of the loan.

To add a whole new spin on the above scenario ….. If you are an Expat living in the USA and STILL own a home in the UK, have you considered this?

Refinance the UK home at the amazing low rates over there, take the cash out option and apply it to your mortgage here as a lump sum payment? Refinance your home here into a 30 year fixed and you are back on track.

With the alarming number of foreclosures happening on a daily basis, you have a choice to not become a statistic - JUST BREAK YOUR ARM.

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