Delaware Adjustable Rate Mortgage Holders Prepare for Increase in Interest Rates
Delaware Adjustable Rate Mortgage
Delaware Adjustable Rate Mortgage will be increasing their rates because, in 2004, the Federal Reserve made it clear that short-term interest rates would be increased at a measured pace because of a fluctuating US Dollar, unstable oil prices and an evaluation of other economic indicators. In an effort to curb inflation, the Federal Reserve has kept its word and continued to raise short term rates, including one incredible streak of 17 consecutive interest rate hike announcements following meetings of the FOMC. As a result of these interest rate increases, thousands of Delaware homeowners with adjustable rate mortgages will feel the sting of corresponding increases in their annual adjustments. Delaware consumers with revolving debt accounts tied to the prime rate have already felt the impact, as the prime rate always rides 3% above the current Fed Funds Rate. And although an increase in the Fed Funds Rate does have a direct impact on financial markets as a whole, Delaware mortgage rates are affected rather indirectly, and may go up or down based on the prevailing perception investors have of current economic statistics and their reaction to the Federal Reserves after-meeting statements.
In general, when economic data indicates we have a slow-down occurring in our economy, investors tend to sell off stocks and reallocate that money to the safe haven of bonds and mortgage-backed securities. The purchase of mortgage-backed securities drives mortgage interest rates down. When economic data indicates growth in the economy, the stock market typically rallies and mortgage-backed securities sell off to fuel that stock market rally. This drives Delaware mortgage interest rates up.
Our current market reflects the reaction of investors having read between the lines on comments made by the Fed. This will continue to have an effect on Delaware homeowners with adjustable rate mortgages (ARMs) tied to indexes that are based on short-term interest rates. This includes the 11th District Cost of Funds, 12-Month Treasury Average (MTA), London Inter Bank Offering Rates (LIBOR) and others. This doesn’t mean that everyone with an adjustable mortgage is in immediate danger.
Delaware Adjustable Rate Mortgage Indexes
Some indexes are more volatile than others. COFI moves much slower than other adjustable rate indexes, while the LIBOR fluctuates with more volatility. But remember, when an ARM adjusts, the new interest rate called the Fully Indexed Rate is a sum of the borrower’s fixed margin plus the current rate of the index the mortgage is tied to. In addition, slower moving indexes, like COFI and MTA, are still likely to reach the levels of their volatile counterparts in a market where interest rates are rapidly climbing. It may just take them longer to do so.
However, as with any decision to refinance, it is important to take the terms of the existing Delaware mortgage loan, the cost of the new mortgage loan, and the borrower’s long-term needs into consideration. A qualified mortgage professional should help weigh out the options by providing a clear assessment of available Delaware loan programs for the consumer.
Delaware consumers who foresee paying an interest rate that is significantly higher may want to consider refinancing to take advantage of the stability of a fixed-rate mortgage.
John R. Thomas – NMLS 38783
Certified Mortgage Planner – Primary Residential Mortgage, Inc.
302-703-0727 DE Office / 610-906-3109 PA Office / 410-412-3319 MD Office
248 E Chestnut Hill Rd, Newark, DE 19713