While I was growing up, my father repeatedly taught me that when mortgage interest rates are going down, they slowly creep lower. But when interest rates are rising, they leap upward. The lesson is always have a fixed interest rate for the length of time you plan on being in the home. This is because a variable interest rate can unexpectedly skip upward, well beyond what is affordable to your income, and force you out of your home. I have known people over the years whose homes were foreclosed upon when their variable mortgage interest rate ratcheted up and one issue or another prevented them from being able to re-finance.
Last year, my own bank wanted get me into an adjustable-rate mortgage. I asked, “And what do I do if interest rates move up?” He replied, “Don’t worry about it, if rates starts to move up then we’ll re-finance into a fixed rate.” Well, I’ve seen the end of that movie many times and it does not end well.
So what has happened lately? In the chart you can see that mortgage rates have risen by over 1.2% in less than 2 months. This rise is faster than mortgage rates have risen in over 50 years. As a result, more borrowers are opting for variable rates to try to save a little money. Unknowingly putting their home at risk to save a few dollars – only to lose their equity in the next round of foreclosures in a few years.