Adjustable Rate Mortgage

Your Choice, Refinance Your ARM Or Let It Adjust Lower

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.

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.

Adjustable Rate Mortgage

Have You Considered an Adjustable Rate Mortgage Lately?

Each week, government-led Freddie Mac publishes a weekly mortgage rate survey based on data from 125 banks across the country.  According to this week’s results, the relative rate of a 5-year ARM is extremely low versus its 30-year fixed-rate cousin.

Consider this comparison:

• In April 2009, the two products ran neck-and-neck with respect to rates
• In April 2010, the two products are split by 0.99 percent

On a $200,000 home loan, that’s a difference of $117 per month to a mortgage payment.

Adjustable-rate mortgages aren’t suitable for everyone, but they can be a terrific fit given your individual circumstance.  For example, any one of the following scenarios could warrant a 5-year ARM:

1. Buying a home with an intent to sell within 5 years
2. Currently financed with a 30-year fixed mortgage with plans to sell within 5 years
3. Interested in low payments and comfortable with longer-term interest rate and payment uncertainty

Additionally, homeowners with existing ARMs may want to refinance into a brand-new ARM, if only to extend the initial change date on the current note.

Before opting for an ARM or a fixed rate mortgage, speak with your mortgage planner about how adjustable-rate mortgages work, and what longer-term risks may exist.  The savings may be tempting, but there’s more to consider than just the payment.

Contact James K Barath in Northwest Indiana to Qualify for Your FREE FHA Home Loan Approval Today!

Adjustable Rate Mortgage

Don’t Rush to Refinance that ARM – It May Go To 3% or Less

If your mortgage is set to adjust this year, the smart move may be to let it. Today’s conforming adjustable-rate mortgages are adjusting lower than ever before in Northwest Indiana – as low as 3 percent.  It may not be what you expected when you signed for your ARM several years ago.

The reason why ARMs are adjusting lower is because of how they’re made.

When conforming adjustable-rate mortgages adjust, they adjust according to a pre-determined formula. The formula is the sum of a constant and a variable.  The constant is usually 2.25 percent and the variable is a daily-changing interest rate called LIBOR.

The formula looks like this:  New Mortgage Rate = LIBOR + 2.250 percent

LIBOR is an acronym for London Interbank Offered Rate.  It’s an interest rate at which banks borrow money from each other. In Fall 2008, when Lehman Brothers fell and sparked a global banking fear, LIBOR spiked as the risk of inter-bank borrowing jumped. 

Since then, however, LIBOR is down.

Normalcy is returning to banking and the timing couldn’t be better for homeowners with ARMs. 15 months ago, a homeowner’s ARM may have adjusted to 6 1/2 percent.  Today, that same ARM falls to just above 3.

As a strategy play, it might make sense to let your ARM adjust. Or, because fixed rates are still near 5 percent, converting that ARM to a long-term fixed-rate product might make sense, too.  The decision is a balance between how low do you want your payment, and how long might you live in your home.  

The longer you stay, the more it might make sense to switch to fixed-rate, even though ARM rates are so low.

If you have an adjustable-rate mortgage, talk to a qualified mortgage adviser about your choices. Once March ends and the Fed withdraws its mortgage market support, mortgage rates may rise and the fixed-rate option may be gone.

Contact James K Barath in Northwest Indiana to Qualify for Your FREE FHA Home Loan Approval Today!

Adjustable Rate Mortgage

It’s A Good Time To Look At Adjustable-Rate Mortgages

According to the Freddie Mac weekly mortgage rate survey, the relative cost of a 5-year ARM is dropping versus its 30-year fixed-rate cousin.

During the first 5 months of 2009, the products ran neck-and-neck. Today, they’re a half-percent apart.

On a $200,000 home loan, that’s a difference of $60 per month.

Adjustable-rate mortgages aren’t for everyone, but for the right household, they can be a terrific fit.  A few scenarios that warrant consideration of a 5-year ARM include persons:

1. Buying a home with an intent to sell within 5 years
2. With a 30-year fixed mortgage and plans to sell within 5 years
3. Interested in low payments and comfortable with longer-term interest rate and payment uncertainty

Additionally, with homeowners with existing ARMs may want to consider taking on a new ARM, if only to extend their initial, fixed rate period.

Before choosing an ARM, make sure to speak with your Certified Mortgage Planning Sepcialist about how adjustable-rate mortgages work, and what causes them to adjust.  Although conventional ARMs are limited in how far they can adjust, it’s important to know the risks.

Need more expert advice? Ask the team of Certified Mortgage Planning Specialists at Benchmark Mortgage.

Adjustable Rate Mortgage

How To Know If Your Adjustable Rate Mortgage Will Adjust Lower

When conforming mortgages adjust, they’re often tied to an interest rate index called LIBOR.

LIBOR is an acronym for London Interbank Offered Rate. But what LIBOR stands for isn’t as important as the role it plays.

LIBOR is an interest rate at which banks borrow money from each other. Therefore, when banks feel the banking system as a whole is unsafe, LIBOR rises to compensate.

It’s why LIBOR spiked last October after Lehman Brothers failed. Financial institutions wondered what other institutions would fail and that added risk to the system.

Since October, however, and because of massive government interventions worldwide, LIBOR has been on a steady retreat. Moreover, with close to $30 billion in conforming mortgages scheduled to adjust by Labor Day, the timing couldn’t be better for homeowners with conforming ARMs.

Typically, a Fannie Mae- or Freddie Mac-backed mortgage adjusts once annually. The adjusted interest rate is always equal to some constant — usually 2.250 percent — plus the rate of LIBOR on the date of adjustment.

As a math formula, the ARM formula might look like this:

New Mortgage Rate = LIBOR + 2.250 percent

In October, when LIBOR was above 4 percent, a homeowner’s ARM may have adjusted to 6 1/2 percent. Today, that same ARM would move to four-and-a-quarter.

As a strategy play, it might make sense to let your ARM adjust because the rate will remain low, but with fixed rate mortgages hovering near 5 percent, locking up a long-term rate may be smart, too.

Talk to your mortgage planner to review all of your choices.