Homeowners have lived a life of luxury most of this decade given incredibly low interest rates. Well, things are changing and you need to be on top of the situation.

Evaluating Your Loan in Light of Rising Rates

If you own a home, you know this has been a very, very, very good decade in the real estate market. Historically low interest rates have fueled a real estate market that has boomed like no other. The demand for housing has resulted in an absolute explosion in home values. For the last few years, it was not uncommon to see appreciation rates of more than 20 percent annually in certain parts of the country. It just doesn’t get any better than that.

Unfortunately, the boom could not go on forever. For the last six months to a year, we have seen the scenery change. The Federal Reserve has been raising interest rates, resulting in a reduced demand for homes. This, in turn, has resulted in home prices pulling back from previous highs. Nobody knows where the market will plateau, but you should assume things will continue to pull back for a bit. On top of all this, the recent elections have changed the political landscape, which means we are looking at a period of instability for better or worse.

Put together, this scenario should be a wake-up call for homeowners. In particular, it should be a wake-up call for homeowners that do not have fixed rate mortgages. Most do not. Hey, we all got greedy. Adjustable rate mortgages could be had at such low rates that it was laughable. We all took advantage of it. It was simply too tempting. Well, the chickens are about to come home to roost and you better be ready.

As a homeowner, you need to sit down and evaluate your current mortgage debt situation. If you have adjustable or hybrid loans, how high can the payments rise before you are in trouble? Would you be better off flipping the loans into a fixed rate mortgage to eliminate the risk of rising rates? There is not a right or wrong answer regarding what all homeowners should do. The answer is entirely dependent upon your personal situation. The point of this article is to alert you to the fact you need to make sure you are on solid footing so no nasty surprises arise.

There is little dispute that homeowners have been living through the golden age of real estate the last few years. That golden age is slowing down significantly, so make sure you are in a good position to wait for the next one.

Dan Lewis is with Great Western Mortgage - providing San Diego debt consolidation loans.

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