Adjustable Rate Mortgage Advice
by Sandy from Highland, CA
Ask Kate: Adjustable Rate Mortgage Advice - Is there a loan program out there that will just fix our interest rate? Hi Kate, We are currently in an interest only 5/1 arm due to change August of 2010. We have no equity in our home to refinance. Our home is worth about 230k and our loan amount is 357k. On top of that my husband's student loans kick in this coming January which will make our financial super tight.
We were denied a home mortgage modification by Wells Fargo. But all we really want at this point is to have our rate fixed so that there are no surprises. Is there a loan program out there that will just fix our interest rate? It's hard to sleep at night when you just don't know what's going to happen.
Kate Answers: Is there a loan program out there that will just fix our interest rate?
Here's the good news! As with most 5 year adjustable rate mortgage products, after the fixed period ends, there is no balloon payment looming over homeowners which was common in the past.
What this means to you is most likely your mortgage does not demand a refinance at the end of the five year period. Of course the rate and monthly house payments will adjust but if mortgage rates remain low, the adjustments may not be all that bad.
Of course there is no way of knowing the future of interest rates. But in the absence of a balloon payment, at least you won't be forced out of your home as long as you continue making payments. And if rates remain stable, after the adjustment you could notice little difference in your monthly house payments.
Adjustable Rate Mortgage Paperwork
So here's what I'd like you to do. Get out your mortgage paperwork and let's see if we can determine what to expect from a rate adjustment.
First of all, you'll need the adjustable rate mortgage documents you received when you bought your house. Cut through the paperwork lingo at Promissory Note and Adjustable Rate Mortgage Rider
Adjustable Rate Mortgage Index and Margin
Now that you are familiar with your Promissory Note and Adjustable Rate Mortgage Rider, let's search for indicators to future rate adjustments.
Look for the index
(the specified economic indicator like Treasury Securities, COFI or LIBOR that causes the variance in an interest rate) plus the margin
(the lender's profit, a set figure as disclosed in your mortgage documents).
Using an internet search to locate your index, you'll find today's value. By adding it to your margin (which never changes), you can estimate the interest rate if it were adjusting today.
Index + Margin = Interest Rate
Hopefully this will give you some peace of mind.
I have also included links at the bottom of this page that lead to pages on my website covering various fixed rate products. My articles will give you an insider's view you won't find anywhere else!
New! Armida H. from El Paso, TX is concerned about the adjustable rate mortgage paperwork she's being asked to sign. See my response at Adjustable Rate Home Mortgage For Seniors
. (Scroll down to comments for Armida's new question.)
If all the talk about margin and index or balloons is making your eyes glaze over, please accept my apology. Write back and tell me what's murky! I'd be glad to clarify.
Sandy, please come back and visit often. Help me spread the word by sharing my website with your friends. Remember, all of my information is free!
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