There has been such hype and 'nasty' news over adjustable rate mortgages but there could also be a positive side for your well worn wallet! What if your rate adjusts down to 3% or below? I don't know about you but dump your strategy to refinance! Check out your loan before you 'join the herd mentality' to refinance.
Do what is best for you with what is happening in today's market. This post is from a loan officer in the Houston Area, Tommy Xintaris, and he has many valid points.
Enjoy his thoughts on this topic.
If your mortgage is set to adjust this year, the smart move may be to let it. Today’s conforming mortgages are adjusting lower than ever before — 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 and it pretty easy. 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 Austin 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’ve got an adjusting ARM, feel free to contact me 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.
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Check Tommy out on Twitter @RightMtgGuy for the latest and greatest mortgage advice
Thanks for posting. We learn a lot from Active Rain blogs. Best Regards,
Good post on understanding the product you have and how to maximize it's use. The word ARM strikes fear in many - but the fear can be calmed if you know what you have. ARM's are not what caused the problem - the kind of ARM in combination with the halt of appreciation is what caused the problem.
Susan: You might be able to use the ARM to your advantage and 3% I think is a great advantage. The market 'plays' you with the interest rate, now you 'play' the downturned market.
I did not expect to see this and many people who have adjustable rate mortgages didn't either. A surprise. but possibly a pleasant one.
Judi, as you said I'd forgotten that it could happen. I myself have been conditioned to only think the worst instead of the possible.