Let’s talk about adjustable rate mortgages. Everybody's afraid of them. Well, I understand why... because nearly 10 years ago, during the real estate boom, people were doing adjustable rate mortgages, they were getting into a mortgage with a 1% rate to start, and then all of a sudden, it became 6% and 7%. That’s not how true adjustable rate mortgages work, those were predatory loans that no longer exist, they're all illegal now.
The Fed announced a couple weeks ago, they’re gonna start dropping the Fed rate, they're gonna start dropping, the adjustable rates that pretty much everybody follows: LIBOR, the Prime rate, the Fed rate... they all follow the same rules so to speak. When the Fed says that they're gonna drop the rates, guess what? The rates are gonna go down.
If you have an adjustable rate mortgage at 3.5%, and a fixed rate at 4.5%, and you know that the adjustable rates are going down. Isn’t an adjustable rate better than a fixed rate in that case?
Of course some clients tell me: “Phil, you weren't around in the 80’s” I was, but I wasn’t cognizant of interest rates (hehe). Either way, are we ever going to get those 18% rates again? Is our economy ever gonna boom the way it did in the 80’s where we were competing against Japan to be one of these economic superpowers?
I don't think it's going to be anytime soon, not in the next decade.
So if you are on an adjustable rate you are gonna save a lot of money now, if you’re saving 1% on $200,000 that’s $2,000 a year, if that rate goes down, you're gonna save more money. And then eventually when it comes to rates, you've saved all this money. Even if the adjustable rate goes higher, you’re just kind of bouncing out your savings.
The point is: don't be afraid of adjustable rate mortgages, they’re not a bad thing. Really look into them and try to understand them. I'd be happy to sit down with you, don’t be afraid to ask, I’m here to help you!