Interest Rate Hike?

Last year I was busy warning people away from the ARM mortgages. At the time many of the lenders were offering Prime +0.60% or higher. In the last few months we have seen that drop and now lenders are offering the Prime -0.30%.

I am a believer in the ARM and I do believe that in the long run you pay less on the term of your mortgage barring any unforeseen calamities but when the banks swing from Prime -0.60% to Prime +0.60% in the space of six months, I just believe it's safer to go fixed at that time. Possibly taking one of the special 1 or 2 year rates that are available because we know that the pendulum will swing back.

In case you forgot how fast the Prime rate can change then let me remind you. November of 2007, we had a prime rate of 6.25%. Folks, that's less than 2 years and 4 months ago. So if rates get back there in 2 years and you have a Prime +0.60% rate then you'll be paying 6.85%. All of a sudden that dream home is not so affordable!

This is why I applaud the recent move to qualify borrowers on the 5 year fixed rate. It's a smart move. It's real easy to fall in love with a house and justify the purchase based on the current prime rate but we saw what happened to our neighbours in the South.

Ah well, back to my point. The current ARM rates are attractive but going out on a limb again I have to say that a 4 year mortgage at 3.4% sounds really attractive to me right now and in fact if I really go out there a 10 year at 5.20% sounds great too. Remember less that 2 and a half years ago Prime was at 6.25%.

I know, I know. It's supposed to be about great mortgage products but to me one of the greatest mortgage products is allowing the home owner to keep their home.

Just saying...