Quote:
Originally Posted by HarryT
Sorry - I know that this is way off-topic, but I'd be interested to know the reason why the same thing isn't happening to people in the US!
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Well, the answer is, it depends.
First, I'm not sure how it works in the UK, but many mortgages here are "fixed" rate. The rate is set at loan origination and does not change. See about re-fi below.
What you are talking about are ARM's (adjustable rate). Many people do get ARMs and they will adjust. But, usually the adjustment is done 1 time per year. Also, the payment doesn't always adjust with every rate adjustment. So, your rate could adjust every 6 months but your payment only adjusts once a year, or maybe even once every other year.
Also, the adjustment depends on what index the rate is tied to. Sometimes it is t-bills rather than prime lending. t-bill rates get better in a bad economy.
In addition to that, many people get an ARM expecting that their income will rise with the rate. If that doesn't happen you are in trouble.
Also, many ARM's have an intro rate... the first year rate is much lower than the normally indexed rate would be. So, even though the index rate is lower now, people payments still go up when they are out of the intro rate. Alot of mortage problems here were due to loans being approved at the intro rate, which isn't realistic.
The only other way to change the rate is to refinance. If a house is mortagaged to 95% of its value when it is bought and the value of the house goes down 30% or more... then you owe more than the house is worth, no one will refinance it for you.
So, no just because rates are lower now than your current mortgage may be doesn't mean you will be making a lower payment right now.
BOb