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If I’m On An Adjustable

Posted by Earl on February 6, 2012 in Adjustable Rate Mortgage with 5 Comments


Question by Jessica: If I’m on an adjustable rate mortgage, will my rate go down, if the prime rate go down, without me refinancing
I have an adjustable mortgage with a 2 yr fixed rate, but in 2 months my mortgage payment will increase to $ 400 dollars. I’m just wondering why it’s going up if the prime rates went down, shouldn’t my mortgage payment go down instead? Please help I’m confused.

Best answer:

Answer by Tim D
ARM’s are set based on a margin over a certain index. You need to look at your mortgage papers and find out what index it is based on and what your margin over that index it is set to.

Index list:

LIBOR
COFI
MTA
Prime

Example Your paperwork will say after 24 months your rate will be MTA + 3.5%

So if the MTA is 4.00% then your new interest rate will be 7.5%.

Some of these are 12 month averages such as the MTA which don’t usually move up or down very fast even if the economy swings. This is a good thing if rates are going up but a bad thing if rates are going down.

Hope this helps. It would seem that your rate should be lower than 2 years ago but they may have locked you in at a good teaser rate at the time.

It might be time to refi and get a fixed long term loan. Rates are good right now.

Know better? Leave your own answer in the comments!

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5 Responses to “If I’m On An Adjustable”

  1. AdrianBowman

    February 6, 2012 - 6:27 am
    1

    Adjustable rates are to allow the borrower, extra cash in their hands for an agreeable term. But when adjustable time to mature, it doesn’t matter what the market is doing, what ever is your maturity fix rate after two years will be your start rate, not to go beyond margin 30 year fix rate, which is usually 3 point above your adjustable rate. So if your adjustable rate is 7% and the margin is 3%= 10%, 10% will be your maxium fix rate during the loan, Until then, your answer is YES.
    RICKEY G.

  2. Melvin

    February 6, 2012 - 6:56 am
    2

    Ok this is going to sound nuts, but it’s a fact.

    The prime rate has nothing to do with mortgages. It only dictates the financing rate provided to companies from the federal government. So in turn this helps stimulate the economy.

    It also has an impact on home equity lines of credit. So when consumers are waiting on the fence to “see” what the fed does. It’s completely idiotic.

    Look at August 1998, the mortgage rates around that time were roughly 6.92% but yet the fed rate was 5.25%. Compare that with today’s mortgage rate of 6.04% as of May of this year. With the fed rate being 2.00%.

    If you were going to use the FED RATE theory, than shouldn’t the mortgage rates in 1998 be almost 2 times greater?

    Or how about the mortgage rate in Jan. 2002 being around 7.00% when in fact the fed rate was 1.75%? And I believe fed rate didn’t change again in 2002 until Novemeber 6th. But the mortgage rates in the meantime were hoovering around 7.00% to as low as 6.11%.

    One thing that you want to consider is contacting your lender to see if they are willing to allow you to enter into a 30 year fixed mortgage without having to refinance. That is if you are seeing some difficulty to pay the mortgage if it is increased. They will ask you for your financial information, so provide them with what they need to make a decision.

    Otherwise contact 1-888-995-HOPE (888-995-4673), they are a hotline that helps borrowers all the time. You can find more information at http://www.homebycountrywide.com/learn/homeowner/foreclosure/2.aspx . There is no charge for you to have them help you out.

    Good luck

  3. Lonnie

    February 6, 2012 - 7:46 am
    3

    The first two years are like a teaser rate to get you into a house. Then there is 1 big adjustment to near what the current levels are. After that the rates will go up slowly, or maybe up and down a little.

    If I were you I would start looking for a fixed term loan NOW!! Like as soon as the banks open tomorrow. Hopefully you have made all your payments on time and have a terrific credit score.

  4. Nathan

    February 6, 2012 - 7:52 am
    4

    yes

  5. Alan

    February 6, 2012 - 8:37 am
    5

    Mortgage rates are not tied to the fed rate, this includes arm rates. Mortgage rates are tied to the 10 year treasury. As a general guideline, add 1.5-2 to the 10 year and that’s a ballpark figure for 30year rates. You really need to find the note and/or mortgage paperwork to see what index your rate is tied to. The one poster made a great point, what is the margin if any? For example, the LIBOR index, is around 5-5.5, so add your marging and what the rate increase will be and you have your new rate. Hopefully you have some equity in the home so that you can look into refiancing and getting a fixed rate mortgage or another arm if that’s you wish. Depending on where you are in the nation, you may be ok to refinance. best of luck and let me know if you have any other questions

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