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.

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: Adjustable Rate Mortgage Advice - Is there a loan program out there that will just fix our interest rate?

Hi Sandy, 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.

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 lingo here at Adjustable Rate Mortgage - How To Avoid Surprises.

Now that you are familiar with your Promissory Note and Adjustable Rate Mortgage Rider, let's search for clues. 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).

By "Googling" your index to find today's value and adding it to your margin which never changes, you can estimate the interest rate if it were adjusting today.

Index + Margin = Interest Rate

Now plug that estimated rate into my mortgage payment calculator found here to figure out the payment based on today's numbers. Hopefully this will give you some peace of mind.

SIDEBAR: For those who are contemplating an adjustable rate mortgage, please review these questions How To Ask Questions That Will Guarantee Low Mortgage Payments before you decide on an ARM.

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!

In addition, by visiting Welcome to Adjustable Rate Home Mortgage Tips, you'll discover solutions based on inquiries from other Contributors just like you.

If all the talk about margin and index or balloons is making your eyes glaze over, please accept my apology. Write me back and tell me what's murky and I'd be glad to clarify.

Take a moment to bookmark Adjustable Rate Mortgage Advice - Is there a loan program out there that will just fix our interest rate? to your favorites so you can easily return in the future.

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!

Best Wishes,

Riveting Fixed Rate, Hybrid and Adjustable Rate Mortgage Help

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