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Mortgage rates are on the rise. Since last June, the Federal Reserve has upped short-term interest rates several times and they are expected to raise them another quarter point when they meet again on March 22. The Beige Book report issued by the Fed indicates that while we are in an inflationary period, the rate of inflation is mild.

Bob Walters, Chief Economist for Quicken Loans says the rise in rates could be due to technical trading factors. However, he says “maybe this is a good time to take on a sense of urgency.” He advises that if you can lock in a rate that you find acceptably low now, you might want to go ahead and do so.

Refinance Your Adjustable-Rate Mortgage to a Fixed-Rate Mortgage
If you are currently in an adjustable-rate mortgage (ARM), you may want to think about refinancing to a fixed-rate mortgage.

Gain Certainty
There is a degree of uncertainty that goes along with having an adjustable-rate mortgage. Since short-term rates are steadily edging up, it’s hard to predict how much your payment may be next month, or even 6 months from now. That can make budgeting your finances difficult.

Avoid Rising Rates
It may be a good idea to lock into a low fixed-rate now before rates go up again. Going to a 30-year fixed mortgage can give you the stability of a low fixed rate for the long term. If rates now are lower than when you closed your current mortgage, it may be wise to refinance. Even a difference of only one-half to three-quarters of a point lower than your current rate may be enough to lower your mortgage payment.

If you have an ARM and your fixed period is going to expire soon, it may make sense to lock into a rate today. Even if current rates are a little higher than what you currently have, in 6 months, interest rates are projected to be higher than what they are today.

Consider a Fixed-Rate Interest-Only Mortgage
Mortgage products have changed significantly in the last several years. New loan products have emerged to meet every imaginative financial situation. One new loan that was recently introduced to the market is called an interest-only mortgage.

An interest-only mortgage is one that gives you the option of paying just the interest or the interest and as much principal as you want in any given month during an initial period of time. While interest-only loans have traditionally been ARMs, new interest-only fixed-rate mortgages combine the best of both worlds: the stability of a fixed rate and the payment flexibility of an interest-only loan.

Reality vs. Myth
Traditional mindset says that if you’re only paying interest on your mortgage, you’re not building equity in your home. This is not necessarily so. The reality is that homes are appreciating in value which means you’re still building equity through appreciation, even when you’re not paying down the principal.

The Benefits of Interest-Only Loans
There are several advantages to interest-only mortgages. They allow you to control your payment amount and cash flow, which is extremely helpful if your budget is tight or if you have other financial priorities.

For instance, you may want to put more funds toward your retirement plan to take advantage of your employer’s match. Or maybe you want to pay down higher interest debts, such as credit cards. You may also want to make home improvements or have a child that is getting ready for college and need the money to pay for his/her tuition. Interest-only payment flexibility can help you meet these objectives.

Having a low fixed rate and payment also makes it easier to deal with sudden and unexpected circumstances, such as needing a major car or house repair. With a lower payment and increased cash flow, you’re better able to deal with the unexpected.

Regardless of the interest rate environment, there are many reasons to consider refinancing to a fixed-rate interest-only loan. But in today’s rising rate environment, the advantages are even greater. Walters also cautions that mortgage rates tend to rise much faster than they fall. People should understand that procrastination can be costly.

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