Most real estate experts agree that housing prices will continue to drop in most metropolitan markets in the near future. Consider the impact that the adjustable interest rate home loans originated between 2003 to 2006 have had. In the past, these ARM loans that were popular for new homebuyers because the mortgage rates were low for a teaser period.

During that period borrowers got used to low lending costs that are just not possible anymore.  Many people find themselves rate shopping for a refinance loan that no longer exists.  Homeowners need to realize that if their mortgage has a variable rate that they need to refinance while they have enough equity to qualify.  According to mortgage lender, Paul Proffitt, “With home values plummeting the window for mortgage refinancing may shut sooner than later.” 

Adjustable home mortgages accounted for over 65% of foreclosures in the 4th quarter of 2007. It used to be that, If you only plan to remain in a house for a few years, then a low teaser rate mortgage was an appropriate choice of loans, but this has changed.  Many borrowers think they will move and buy up, but often times this option disappears as they are unable to sell their existing home.  Therefore a secure fixed rate mortgage makes more sense because if they don’t move, then at least they know they have a mortgage payment that they can afford.  The threat of inflation brings into focus the dull, but risk-adverse, fixed-rate mortgage. FHA home loans continue to promote homeownership with responsible fixed rate terms.  In a rising-rate environment, it’s the best deal around. It provides complete insulation from higher borrowing costs once you lock in a rate.