Rising interest rates affect mortgages and home equity loans. If your loan is a fixed-rate mortgage, your payment won’t change at all. ARMs are adjustable rate mortgages, or variable loans, and if your loan is scheduled to adjust and rates have risen, your payments will go up.
If you are anticipating a rate increase, one of the best solutions is to lock you rate. See our article on locking in your rate.
If you do not have a fixed rate mortgage, even if your ARM doesn’t adjust for a few more months, it’s not too soon to start planning. If you expect to stay in your home for a while, consider refinancing to a hybrid ARM. Hybrid ARMs offer a fixed rate for up to 10 years before adjusting.
In many cases, rate increases are limited to 2 percentage points a year and 6 percentage points over the life of the loan. Annual caps give you some breathing room. If you think you’re going to move in a couple of years, you may be better off just sticking it out.
There are many mortgage calculators on the Internet that let you calculate how a rate increase will affect your monthly payment. Talk to your lender for further information.
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