Tuesday, June 8, 2004

Future Fed Hikes - Pain In The ARM

Fed Chairman Alan Greenspan spoke regarding future Fed rate hikes.

With all the worry over just how aggresively the Fed will hike rates it seems likely that there will be a stall in the treasury market causing mortgage rates to rise before the impending Fed hike that could take place any day now. That said it seems likely that rates will surge at significantly high levels in the days and/or weeks to come.

What will the outcome be? A Major pain in the ARM(Adjustable Rate Mortgage.) ARM Borrowers will feel the impact of the hike more so than fixed rate borrowers.

One senior economist says Americans are carrying a lot of debt and much more of it will be exposed when rates rises. 50 percent of new mortgages outstanding were Adjustable Rate Mortgages. As a result almost one quarter of total household debt would be affected instantly by higher rates, more than 70 percent higher than the exposure rate seen in 1994.

Rising rates will impact households by reducing buying power and less spending.

Good news for those who opted for fixed rate mortgages.