You Currently Have a 5-Year Adjustable Variable Rate Mortgage Which

question 116

Multiple Choice

You currently have a 5-year adjustable variable rate mortgage which is 4 years into the adjustment period. The current interest rate is 3.5% per annum, and the rate is indexed to the 10-year Treasury note which is currently yielding 2.15%. Most financial forecasters are anticipating rate increases over the 2018-2019 period, but there is no consensus on the total amount of the increases. Given the interest rate environment, what would be the best course of action for your mortgage?

• A) Double up on payments and pay it off in half of the term.
• B) Refinance at the conventional 30-year fixed rate currently offered at 3.75%.
• C) Stick with your existing mortgage since it is currently 3.5% and below the offered fixed rate.
• D) Refinance into a 1-year ARM so that when rates decrease you will be in a better position.

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Definitions:

Drumlin

A commonly teardrop-shaped hill formed when a glacier reshapes glacial deposits.

Roché Moutonnée

A rock formation created by glacial erosion that leaves one side of the rock smooth and polished and the other rugged and plucked.

Esker

A long, narrow, sinuous ridge composed of sediment deposited by a stream flowing within or beneath a glacier.

Kame

A geological feature that consists of an irregularly shaped hill or mound composed of sand, gravel, and till, deposited by a melting glacier.