Smart Borrowers Have ARMs

Stop skulking around, feeling sheepish about your adjustable rate mortgage. So what if your next door neighbor keeps reminding you his fixed rate is never going up? He's already paid thousands of dollars in interest that you didn't. And when your rate adjusts, it probably still will be lower than if you had gone for a conventional, fixed-rate loan. Here's how Money magazine explains the situation:

If the Fed cuts rates by a half point Tuesday, the cumulative effect of the Fed cuts could entirely offset what would have been a significant rate reset for many homeowners.

For instance, a borrower with an adjustable rate of 4.5% could have faced a rate reset up to 7.5% before the Fed started cutting rates in September. Before the rate cuts, that homeowner would have seen an increase of $370 in monthly payments on a $200,000 loan.

But after Tuesday, that rate could reset only a little higher. And for some, the rate might not go up at all - and may actually drop - according to Greg McBride of Bankrate.com.

[Photo credit: Ironage]