Housing analysts expect mortgage rates to rise this spring as the Federal Reserve stops buying up mortgage-backed securities. That means many borrowers who use adjustable-rate mortgages have a big decision to make: refinance now into historically low fixed rates or stick with an ARM that’s currently even lower? We took a look in this story last year at some of these borrowers who were grappling with this decision when rates first fell. “I’d rather take my beating now than wait and find out the beating is a massacre,” said Jim Sullivan, a Connecticut homeowner who’d wanted to refinance and pay a slightly higher rate but who’s wife prevailed in keeping them in their ARM.
Amy Hoak at WSJ MarketWatch offers the following advice to borrowers who choose not to refinance – "They need to pay special attention to the index to which their ARM is tied — the 1-year Treasury or the Libor, for example. If someone decided to do watchful waiting, they should establish a rule for themselves. Something like ‘if that index increases by more than 1 or 1.5%, I’m going to move, I’m going to refinance,’” said Jack Guttentag, professor of finance emeritus at the Wharton School of the University of Pennsylvania. “If you’re not prepared to exercise this surveillance, you should refinance right now and trade short-term loss for long-term stability.” Others recommend that borrowers who opt not to refinance into a fixed rate should sock away all the savings that accrues from sticking with the adjustable rate. Then, if rates shoot up, they can refinance into a fixed-rate loan while paying down their loan balance with the savings they’ve accumulated, says Keith Gumbinger of HSH Associates, a financial publisher.
Feb. 24, 2010 WSJ