Debt Free

If you're one of the thousands of American homeowners that maximized your home buying power in the last few years by going with an adjustable rate mortgage, you may be able to breathe a little easier. With the Fed's last intrest rate nudge, it indicated the trend may finally be ending. Good thing for all you ARM equiped homeowners out there. As the rates moved skyward from the historic lows the market has experienced for the last 4 years, thousands of homeowners saw their house payments do likewise. Many of you follwed the trend of getting the most house you could afford. You were hoping the red hot real estate market would lift your home's value far enough to protect you as your mortgage payment soared like a ballon with the burner full on.

In most cases you lucked out. For years, home values continued to climb like Sir Edmund Hillary on meth. Even if you had financial problems, you could sell your home and, in most cases, realize a hefty profit no matter how long you had owned the property. Those days may be at an end in most places. While real estate prices are still rising in many markets, they have also leveled off in many places, but thankfully for many, so have the Fed's interest rate hikes.

The rising interest rates point out the dangers of ARM financing. While ARMs are fantastic for getting you into that McMansion you maybe shouldn't be living in, they can also turn and bite you like that stray dog you fed at the park. Most of you did ok, because property values more than kept pace with the rate hikes, enabling you to use your house like a giant money generating machine. Nationwide, home prices have doubled in tha last 5 years. Some markets, such as Miami, Las Vegas Boston, parts of  California and Seattle have bettered that considerably. In most areas, the increases in real estate values have cooled considerably and won't protect you as well they have in the past.

If you are going to get an ARM, be careful. Calculate what happens if interest rates do continue to rise, even though indications are they may have stopped doing so. Look at the real estate market trends and economic factors in your area. Maybe your area has entered one of the periodic flat periods in real estate appreciation. Your home is most likely your most important financial asset. Protect it. You don't want to be one of the thousands who are now finding it almost impossible to make their mortgage payments. In the first quarter of 2006, a study by RealtyTrak Inc. indicated a whopping 72% increase in foreclosures. Don't be one of those statistics.