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What’s Next for MY ARM (adjustable rate mortgage)?
Over the past 3 to 4 years, homeowners took advantage of low adjustable rate mortgage (ARMs). However, over 9 million of these loans taken out between 2003 and 2006 will reset next year, increasing many home owners monthly mortgage payment.
What you need to know about ARMs:
An ARM is a fixed-termed loan with rates tied to an index, with an additional percentage that the lender tacks on, known as the margin. For example: If the term is a 5/1 ARM, then the fixed period is for five years and the rate will adjust every year after that. After the adjustment period, the rate will be based on your index plus the margin.
For example, say your ARM is tied to a common index, such as the London Interbank Offered Rate (LIBOR), and the rate is 5.00%. You receive a margin from your lender, which can range anywhere from 2% to 6%. If the margin is 4% and the index is 5%, then your new adjusted interest rate would be 9%. This will increase the mortgage payment significantly.
What should you do next?
- Review your mortgage loan paperwork to see what type of ARM you have
- If your rate is about to adjust, consider a fixed rate loan. As you may have heard, long term interest rates have moved in favor of the customer. The Federal Reserve just reduced the prime rate, creating an opportune time to refinance your current mortgage into a fixed rate mortgage.
- Be proactive! With the current trend of home values leveling off, it is crucial to understand how your mortgage position can ensure a healthy financial future.
For additional information Contact:
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Tom Ellis |
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