For the better part of the last 9 months, homeowners with adjusting adjustable rate mortgages have watched their mortgage rates fall.

As short-term solutions go, it's been far smarter to let the mortgage adjust than to refinance into a new ARM or fixed rate loan. Until now, that is. It's time to convert that soon-to-adjust ARM into something new.

This is the opposite advice we gave in February when LIBOR was ultra-low.

The Math For Adjusting Mortgage Rates Is Worsening

Earlier this year, 3-year, 5-year and 7-year ARMs adjusted to as low as 2.875 percent. It was a godsend to households worried their ARMs would actually go up in rate.  2.875 percent is pretty excellent.

Today, though, that's not happening.

Households with June-adjusting mortgages would get a 3.625 percent rate based on today's market. And if the issues in broader Eurozone don't settle themselves down quickly, later this year, households with ARMs could see them adjust to 5.000 percent or higher.

It's all because of how adjustable rate mortgages work.

1. For some fixed period of time, the initial mortgage rate stays constant
2. When the fixed period ends, the rate is recalculated based on a formula
3. Every 12 months thereafter, the rate recalculates again against the same formula

The formula by which ARMs recalculate is as follows:

The "variable" and the "constant" will vary from ARM to ARM, but if you've got a conforming home loan originated after 2002, the chances are very high that your variable is the 12-month LIBOR and your constant is 2.250 percent.

In other words, to calculate your adjusting mortgage rate, just add 2.25% to LIBOR and voila -- that's your new mortgage rate.

LIBOR Is Rising, Rising, Rising

LIBOR stands for London Interbank Offered Rate.  It's the interest rate at which banks lend money to each other and LIBOR tends to rise and fall with the stability of the global banking system.  It spiked in 2008 after Lehman Brothers failed and it's showing a similar pattern today.

And as debt crisis spreads from Greece to Spain to the rest of Europe, the risk of lending amongst the banks gets larger.

Hence, LIBOR rises, too.

The 12-month LIBOR bottomed out in February 2010.  It's up 68 percent since. That's bad news for homeowners whose mortgages are adjusting in June and later this year.

A New Mortgage Is Now As Cheap As An Adjusting One

The same dynamic that is causing adjusting mortgage rates to adjust higher is also causing new adjustable rate mortgage rates to drop. Homeowners can opt for a new ARM at the same rate or better than to what rate their existing loan would adjust.

In bullet points, it looks like this:

1. Let your mortgage rate adjust to 3.625% and adjust every 12 months thereafter
2. Take a new mortgage at 3.625% and get the rate locked for 3 years or longer

Taking a new ARM looks like a complete no-brainer right now, so long as you can keep your closing costs to a minimum.  You don't want to wash out your payment savings with huge costs you'll never recoup.

What To Do About Your ARM

If your ARM is adjusting and you want to know if it's better to refinance or let the adjustment happen, and we can have a conversation about what's best for you.

With "new" mortgage rates at their lowest levels of forever all-time, this is truly the best time to ditch your adjusting ARM for a new one, or a fixed rate loan.

Call or email me anytime. We'll figure out your plan.

Looking for a mortgage rate prediction? I am a weekly participant in the Bankrate.com Mortgage Rate Trend Index and this week's survey may have the answers you need.

Fannie Mae And Freddie Mac Mortgage Rates Only

By way of disclosure, the Bankrate.com survey is for conventional, conforming mortgages only. It does not apply to FHA mortgages nor is the survey specific to mortgage rates in Cincinnati or Milwaukee. Furthermore, unique property types including Chicago non-warrantable condos, condotels and the 5-10 Properties program may be excluded.

for a real-time rate quote.

Breaking Down The Predictions

Here's the group's mortgage rates predictions:

• 24% predict mortgage rates will increase
• 24% predict mortgage rates will decrease
• 52% predict mortgage rates will remain unchanged

I expect mortgage rates to increase.

My advice not be appropriate for your individual situation and I'm not always right. Ultimately, you may find your time better spent with chickens, monkeys and ducks.

Either way, here's what I told Bankrate.com:

"The last three times mortgage rates fell to these levels, it was short-lived and reversed in a hurry. If you haven't locked in yet, consider this Last Call."

In the Mortgage World, the trend is your friend. Ignore past history at your own peril.

First, Why Mortgage Rates Are Still So Low

Next verse, same as the last verse.

Since early-April, we've been talking on the same theme -- mortgage rates benefit when credit markets go haywire, like what Greece's debt crisis has sparked. The cause is something called "safe haven buying".

Alternatively, safe haven buying is known as "flight-to-quality", or "risk aversion".

Regardless of what you call it, though, the patterns is distinguished by a specific trading pattern in which investors sells higher-risk assets in favor of lower-risk assets.

A high-risk asset could be something like a junk bond, or an emerging market's currency. A low-risk asset is something like a government-backed bond, or the U.S. dollar.

So, when credit markets get bad, investors move to the safety of bonds.  And when credit markets get really bad, they move to the safest bonds they can find.

Right now, with all of Europe surrounded by a giant question mark, that "safest place" has become the U.S. market. Everything dollar-denominated is winning.  Mortgage bonds included.

Safe haven buying increases demand for bonds and more demand drives rates lower.

Safe Haven Buying Doesn't Last Forever

European credit strife is shifting U.S. mortgage rates lower, but it's a temporary condition.  Mortgage rates won't stay low like this for long. For a few reasons:

First, over time, markets always return to normal. Fear gets replaced by greed and profit-taking takes hold. Sometimes this happens overnight, sometimes it takes months or years.  But it happens every time.  There is no "new normal". 30-year mortgage rates don't sit below 5 percent forever.

Second, technical trading is still a force on Wall Street. Different from the emotional nature of safe haven buying, technical trading is pattern-based trading, often executed by computer programs.

Technical trading looks for peaks, valleys, and humps in the history of a security's price, and assumes those peaks, valleys and humps will repeat themselves. The computers then make trades based on those assumptions which, in essence, actually causes the pattern to repeat. Think of it like a self-fulfilling prophecy for Wall Street securities.

Right now, we're at a pricing peak and looking down the cliff.

And, lastly, mortgage rates can't stay low like this because the Federal Reserve is holding hundreds of billions of mortgage-backed bonds on its books and, although it's said there's no rush to sell, with so much demand for the bonds, safe haven buying helps the Fed make an orderly exit.

It's tough to dump close to a trillion dollars of supply into a market without causing prices to fall.  Even if it's at a measured pace.

The Prudent Choice Is To Lock Your Mortgage Rate Now

There's very little reason for mortgage rates to drop right now. Markets have squeezed a ton of gains out the European debt scenario. It's time to move into locking position.

MRV -- Mortgage Rate Velocity -- is as high as its been in a year and rate changes come quickly. If you haven't given a loan application to your loan officer, think about doing it today. The longer you wait, the more this next loan may cost you.

Applications-by-phone are a 4-minute process. To give one, call my office at 513-443-2020 or . And be sure to give applications to other loan officers, too. Don't worry -- your credit score won't be damaged if you do it the right way.