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trompe le monde

Arm Sticker Shock Threatens Homeowners

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After foreclosure, homes are auctioned off on the courthouse steps. It's a scene becoming more common these days because of rising interest rates.

The national home ownership rate recently hit a record high of 70 percent. But many of those new homeowners were only able to make the purchase with adjustible rate mortages, or ARMs, which have been good deals in recent years because of low rates locked in for short terms.

Now that interest rates are on the rise, many of those new homeowners are facing sticker shock, and wondering if they'll be able to stay put.

One study says close to a million American homes financed using ARMs will face foreclosure in the next five years, and most of them are worth less than the loan balance.

And most of the buyers involved are first-time homeowners.

"It's a matter of what their main priority was at the time," explained Gary Akright of the National Association of Mortgage Brokers. "Did they want a low payment? Were they just thinking that their homes were going to appreciate?"

About one-third of all mortgages sold in the last two years were ARMs. As those short terms expire, the rates go up.

For example: The interest rate on a home could easily jump from 7 to 10 percent. On a $200,000 property, that could mean a monthly increase of $500.

What's the fix?

Experts say buyers should know what to expect in a home mortgage and decide now if it's the right time to sell.

"If you're in a product that's going up every month and you're getting more negative amortization—or 'deferred principal', as it's called, which just adds on to your principal unpaid balance—then you need to look real strong at the possibility of getting out at this time," Akright said.

Last week, the Federal Reserve raised interest rates for the 15th time since June 2004, and indicated another hike is likely.

Still, experienced brokers say average home mortgage interest rates remain close to 40-year lows.

Today the US, tomorrow.......


Edited by trompe le monde

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
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