| Brian and Lisa Wilcock looked at mortgage interest rates four years ago, did the math and came up with a plan: Because they intended to move in three years, they’d refinance their 30-year fixed-rate mortgage into a three-year adjustable-rate mortgage (ARM) at a lower interest rate and save hundreds of dollars a month. The lower rate shaved $375 off the mortgage payment on their Rochester Hills home. But four years later, they’re still in their three-bedroom, split-level house and have no plans to move. Their introductory rate of 4.37% reset last year, with a 1.25% cap that spared them the full brunt of the interest rate increase. But that’s set to expire in April when the ARM resets to a rate that will likely be above 6%. |  |
Just five years ago, adjustable-rate mortgages carried interest rates so low they allowed homeowners like the Wilcocks to lower their monthly mortgage payments by hundreds of dollars. First-time home buyers flocked to the loans as well, since they allowed often cash-strapped first timers to afford a larger house. “There are more people now than ever with adjustable-rate mortgages,” said Greg McBride, senior financial analyst at Bankrate.com. “The problem — and you could see this coming a mile away — is that interest rates have increased and those same borrowers are coming up for a rate increase.” If a homeowner in 2004 got a three-year ARM at 4% on a $250,000 loan, the monthly mortgage payment was $1,150. That payment today would increase to $1,500 monthly, lenders said. And figured at an interest rate of 7.5%, the payment would increase $509 more per month.
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