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I purchased my home in March of 2005. I had an 80/20 loan. The '20 loan' has since been paid off and now my remaining balance is about $145,000 on a conventional 5/1 ARM. Current rate is @ 5.4% which will adjust this May.
My ARM index type is a 1 year (12 month) LIBOR
Margin is set at 2.25%.
Am I correct in calculating that if my rate were to change today that my new rate would be about 3.13% based on the current LIBOR of 0.88?
I know that the LIBOR could possibly fluctuate between now and when my new rate is set in April but based on the current info my minimum payment would actually decrease?
I've heard nothing but horror stories of having an ARM...that's what has confused me.
The details are what eats some ARM borrowers alive. Too many folks willingly signed loans that have FAR HIGHER margins and/or were based an crazy "escalator" mindset that said "houses never go down in value" that lulled people into accepting negative amortization. If you then wrap that negative amortization around a HELOC or other secondary mortgage it is very easy to suddenly owe some huge multiple of your houses current market value. Folks can be 150% or more in debt...
For folks that know what they are doing and have a solid grasp on the downsides an ARM can save a TON of interest. Alan Greenspan said the same things. Basically all the mortgage brokers that I know / knew used these for their personal homes, and if they lived a frugal and budget conscious lifestyle (which is much more difficult) they kept a lot more dough in their pocket than folks with fixed rate loans... Sadly too many people did not understand that have a VARIABLE rate mortgage meant that they would have to have a BIGGER CUSHION in their budget / savings and they were hit hard.
If you go back and read your ARM rider carefully, you will probably see a floor rate into the loan, ie the lowest that they would charge you would be X%, most of the time in the 4% range
If you go back and read your ARM rider carefully, you will probably see a floor rate into the loan, ie the lowest that they would charge you would be X%, most of the time in the 4% range
Good point. In addition, the OP may have 2/2/6 cap, which means the adjusted rate can't change more than 2% from the previous rate, when it adjusts. In OP's case, that will be 3.4$ - 7.4% for the first adjustment.
ARMs with low downpayments should have only been allowed to young professionals (the young doctors straight out of residency, the young attorney's, fresh MBAs) whose potential to earn very high income in a few years. Those are the type of professionals who can withstand sharp increases in mortgage ARM resets.
I am talking about regular ARMs (where you actually pay into the principal) for those types of professionals.
Than you go into option ARMs, or Interest Only ARMs. I can't believe the lending standards were so lapse issue those types of loans to regular folks with fixed earning income ability.
But than again, people need to read. I read and re-read all 56 pages of my loan docs. Looked over prepayment penalties, looked over ARM reset rates etc. If you can read at a 7th grade level, you should be able to understand your loan agreements. It's not that hard.
ARMs with low downpayments should have only been allowed to young professionals (the young doctors straight out of residency, the young attorney's, fresh MBAs) whose potential to earn very high income in a few years. Those are the type of professionals who can withstand sharp increases in mortgage ARM resets.
I am talking about regular ARMs (where you actually pay into the principal) for those types of professionals.
Than you go into option ARMs, or Interest Only ARMs. I can't believe the lending standards were so lapse issue those types of loans to regular folks with fixed earning income ability.
But than again, people need to read. I read and re-read all 56 pages of my loan docs. Looked over prepayment penalties, looked over ARM reset rates etc. If you can read at a 7th grade level, you should be able to understand your loan agreements. It's not that hard.
That would be discrimination.
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