It’s happening all across the country, and even in the San Francisco real estate market. Adjustable loan rates are resetting, and people are losing their homes. While it’s not anywhere near as prevalent in San Francisco as it is in hard hit areas, there are definitely short sales in foreclosures here in SF and it’s because the low teaser rate homeowners for themselves into over the last few years have reset and are too high for homeowners to afford.

Unfortunately, many homeowners wait until it’s too late to do anything about the problem. In fact, many short sales could have been avoided had the homeowners taken a preemptive approach. But it doesn’t have to be that way. Monica DiPerna of Guarantee Mortgage gives homeowners a few tips on how to keep themselves out of hot water.

LOCK IN AN AFFORDABLE RATE BEFORE THE ADJUSTABLES MOVE UP NEXT YEAR

Why should you consider refinancing sooner rather than later? Because, based on current market behavior, rates that adjust will likely be significantly higher. Don’t risk getting stuck with a very high interest loan (possibly in the 8′s once the adjustable kicks in) when you can lock in a more reasonable rate now.

Please read below to understand the potential interest rate climate we face:

Market Overview

During these volatile times in the market, we have undergone a recent shift in the Bond Yield. Because of the sentiment with bond traders, money has flowed into the bond market. Investors are seeking a high degree of safety right now. This means that rates have gone down a bit during this window. What economists are concerned about is beginning early 2008, in which many loans will become adjustable. This means that if you have a rate of 4.75%, which many of you do, your rate could jump up to 8.5 or higher. Most likely it will not jump up that high, but it will jump up by at least 2.75%. Many of you will face rates in the low 7′s or 8′s if rates continue to stay at their current levels. If rates move up, it could be worse when your rate is due to adjust.

There are subtle factors that indicate that rates have a chance of rising next year or two:

1. Falling dollar could cause inflation which directly affects rates.
2. Federal debt levels are out of control and will eventually lead to higher rates
3. Oil prices are close to $90 a barrel
4. Elections are one year away. Rates could definitely move higher with a change of government.
5. Banks have lost a great deal of money due to the Sub Prime Bad Credit Mortgage Loans. Next year, when millions of people must refinance their adjustable rate mortgages, the banks are going to be less inclined to lower their rates due to the added stress they have felt these last few months. Most likely, the lenders will make up the money they lost during the Reset Period.

Is it worth gambling your financial future to see if rates stay the same when your Reset Date occurs? We, at Guarantee Mortgage, believe it is wise to refinance soon while rates are low to avoid any surprises. If Bernanke decides to cut rates the next couple of Fed Meetings, we may really have an opportunity to lock into some great rates.

Please contact me anytime to discuss your particular situation and to explore options that fit your needs best. If you have friends or family that are facing this situation, please send them a link to this post so that they can use this information to plan their financial strategy.