Fill out to form below and we’ll be in touch to set up an appointment at your convenience.

"Lawrence's outstanding service helps me and my clients. From the simplest mortgage to the most difficult loan, Lawrence has completed the task. He is a true professional."

Anthony DeGregorio Jr., CFP®

"Buying a home - the amount of time and money you're investing - can be scary. Nick breaks it all down into an easy and understandable format. He's very professional and upfront."

Jeremy Starkweather

"I've referred at least half a dozen co-workers and friends to Lawrence, and that says a lot. I think the world of Lawrence - his advice and insight is excellent."

Paul Hidar

"Nick's at the top of his game. Working with him and Team Montani made my first home-buying experience hassle free. I already recommended him to other family and friends."

Mike Devlin

"I'm a real estate investor, and I worked with Lawrence to buy an investment property. He came up with an idea that saved me a substantial amount of money."

Garrett Henderson

"My clients all love Nick Rosetti from Team Montani. He makes them feel like they're his only clients. He takes the time to speak with everyone and gets to know their situation. He really cares!"

Angela Georgalas, Realtor

"Nick Rosetti is the only mortgage professional I frequently recommend. My siblings, parents, and most of my friends have used or are using Nick."

Mike Emmert, Title Agent

"I was so impressed by Lawrence I knew there was no need to shop around. He's so knowledgeable, he's more like a financial advisor, helping you do or afford things you never dreamed were possible."

Paula Mako

"I refinanced my house and bought a vacation home in the last month. Working with Nick Rosetti was great! It was a complex situation, and he made me feel very comfortable."

Nicole Newman

"Nick is great. He keeps me up to date on the clients we have in common. He's quick to respond and always stays in communication."

Mary Alice Goss

Refinance Today!

Home > Resources > Refinance Today!

A Farewell To Arms: Refinance Before Adjustable Rate Mortgages Reset

Since June of 2004, the Federal Reserve has systematically increased the federal funds rate, causing short-term interest rates to follow suit. As a result, consumers with Adjustable Rate Mortgages (ARMs) tied to volatile short-term rate indices, such as the LIBOR, are finding themselves at the mercy of the Federal Reserve’s war on inflation.

“Higher interest rates function as a tax on people who hold variable debt,” says Daniel Gross, reporter for The New York Times, a “truism that is particularly apparent to homeowners holding adjustable rate mortgages.” In his article, Gross cites Mark Zandi, chief economist at Moody’s, who estimates that nearly $2 trillion in ARMs are due to reset by the end of calendar year 2008. This could potentially increase the total interest payments of ARM holders by an estimated $50 billion in 2009, compared to today. For many of these borrowers, reset minimum monthly payments could increase upwards of 50% to even 100% of what they’re paying now – if they haven’t already. And the worst may not even be over!

According to Ben Bernanke, the Federal Reserve’s chairman, the real estate market is experiencing a “substantial correction”. This, economists say, is the result of the Fed’s attempt to engineer a “soft landing” by systematically increasing interest rates to control inflation without fueling a recession. Fed officials believe that they are making strong progress towards this difficult goal. However, even moderate economic growth will give the Fed room to increase short-term rates further, according to David Leonhardt of The New York Times. This means more bad news for ARMs holders with life-caps at 10% or more, and even worse news for the estimated 70% of Option ARM borrowers who chose the minimum or negative payment options of their mortgages and are now actually accruing (and compounding) a larger balance than what they originally borrowed.

If you or someone you know has an ARM, however, all is not completely lost. There is still time to take advantage of alternative loan programs, such as intermediate fixed-rate and tiered-rate loans, that can effectively limit one’s liability before rates increase again. These programs enable borrowers to stabilize their finances and know exactly what their monthly payments will be over the next few years while the Fed does its best to stifle inflation. Remember, the Fed has a habit of overcorrecting the market before changing policies, which means rates could still increase even after their goal of a soft landing has been reached.

If you do foresee a sustained period of paying an interest rate that is significantly higher than what you want or are able to pay, see your mortgage professional today. Don’t be a casualty of the Fed’s war against inflation. Ask about intermediate fixed-rate or tiered-rate products to hold you over until the Fed flips the script and rates finally begin to decrease.

An experienced and resourceful loan professional will have access to a variety of loan programs including 3, 5 , or 7-year fixed-rate products as well as tiered-rate programs to counter fully-indexed ARMs and Option ARMs. A 5-year fixed rate mortgage, for instance, converts to an adjustable at the end of that fixed tenure. Taking out such a loan, with no prepayment penalty, may make a lot of sense right now because it will provide some interest rate relief in today’s market, while buying the consumer time to refinance once rates begin to decrease.

Tiered-rate products, on the other hand, are essentially fixed-rate loans that act like adjustable rate loans but offer the security of a built-in cap. In fact, these loans actually adjust in your favor, saving you money in the first years of the loan before reaching their final fixed rate. Various types of these tiered-rate products exist, and each offer different money-saving options. See your mortgage professional for the one that’s right for you. Just be sure, however, that he or she caps you out at a rate that’s lower than your current interest rate to receive the full benefit of these products. Finally, confirm that your mortgage professional will be keeping abreast of market conditions and will be ready to refinance you once rates do decrease, saving you even more.