Helpful Tips, Mortgage Rates

Your Choice, Refinance Your ARM Or Let It Adjust Lower

July 13, 2010 by · Leave a Comment 

If your adjustable rate mortgage is due to adjust this year, don’t go rushing to replace it just yet. Your soon-to-adjust mortgage rate may actually go lower. It’s related to the math behind the ARM.

ARM adjustment schedule 2008-2010

Conventional, adjustable-rate mortgages share a common life cycle:

  1. There’s a “starter period” in which the interest rate remains fixed
  2. There’s an initial adjustment period after the starter period called the “first adjustment”
  3. There’s a subsequent annual adjustment until the loan’s term expires — usually at Year 30.

The starter period will vary from 1 to 10 years, but at the point of first adjustment, conventional ARMs become the same. A homeowner’s new, adjusted mortgage rate is determined by the sum of some constant, and a variable. The constant is most often 2.25% and the variable is most often the 12-month LIBOR.

As a formula, the math looks like this:

(Adjusted Mortgage Rates) = (12-Month LIBOR) + (2.250 Percent)

LIBOR is an acronym standing for London Interbank Offered Rate. It’s the rate at which banks borrow money from each other and, lately, LIBOR has been low. As a result, adjusting mortgage rates have been low, too.

Last year, 5-year ARMs were adjusting to 6 percent or higher. Today, they’re adjusting to 3.375%.

Based on the math, it may be wise to just let your ARM adjust this year. Or, depending on how long you plan to stay in your home, consider a refinance to a new ARM.  Starter rates on today’s adjustable rate mortgages are exceptionally low in Dyer Indiana, as are the rates for fixed rate loans.

Either way, talk to your licensed mortgage loan originator about making a plan. With mortgage rates as low as they’ve ever been in history, homeowners have some interesting options. Just don’t wait too long. LIBOR — and mortgage rates in general — are known to change quickly.

Related Posts Plugin for WordPress, Blogger...
Be Sociable, Share!

James K Barath, CMPS®

James K Barath is a Certified Mortgage Planning Specialist®, Certified FICO® Professional, Certified Military Housing Specialist® and your FHA Home Loan Expert. He is also a graduate of Purdue University, The CMPS Institute, Dale Carnegie Human Relations Course & Napoleon Hill Foundation's PMA Science of Success Class. It's your home and your future. It's his profession and his passion. He is ready to work for your best interest. Contact James for your FREE Home Loan Approval !  His Motto: I Facilitate the American Dream Through Responsible Mortgage Lending and Financial Literacy!

More Posts - Website

Follow Me:
TwitterFacebookLinkedInPinterest

  • What Is Your Home Worth in Northwest Indiana and the suburbs of Chicago Illinois?

Speak Your Mind

WelcomeHomeNWI.com