Homeowners feel pinch of mortgage rate

Robin Vinopal decided to follow the advice of a financial adviser five years ago when she bought a home in Kensington with an adjustable-rate mortgage.

Now she wishes she had ignored his advice.

“I just hit the first adjustment up, and it’s painful,” said Mrs. Vinopal, a director of operations for a College Park games manufacturer.

Like other borrowers who tried to save on monthly payments with an adjustable-rate mortgage (ARM) or interest-only loan, Mrs. Vinopal is finding that her payments are rising with interest rates.

ARM rates were lower by one percentage point or more compared with the traditional fixed-rate mortgages until about a year ago.

Interest rates on ARMs change with market fluctuations but stay the same on fixed-rate mortgages.

Although ARMs make up 25 percent of home loans nationwide, they accounted for 42 percent of mortgages last year, according to the Mortgage Bankers Association, a trade group for mortgage lenders.

They hit a height of popularity while interest rates were low during the housing boom, when home ownership hit a record 69 percent in 2004.

However, in some cases the American dream was built on unrealistic promises of easy loan-repayment terms.

Now the easy part of the loan is over as rising interest rates create bigger monthly payments.

“A lot of these borrowers are going to refinance into a new mortgage at this point,” said Mike Fratantoni, Mortgage Bankers Association senior economist.

Sixty percent of subprime loans, including some ARMs, are scheduled to have their interest rates reset by the end of the year, according to the community activist group Association of Community Organizations for Reform Now (ACORN).

Typically, ARM mortgages require the same payment for the first one, three or five years, then reset each year to reflect the most recent interest rates.

Increases in interest rates “pose a huge threat to the security of individual homeowners and entire neighborhoods,” ACORN said in a report on the risk subprime mortgages create for low- and middle-income households.

Mortgage lenders say they already are seeing their ARM customers returning to refinance.

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