Posted on: 14th May, 2008 10:22 am
My 5 year arm ended and my interest rate adjusted up. I would like to know why since rates have went down.
Although the news let's the public now that the Fed has lowered interest rates, the rates that the Fed changes affect short-term interest rates. ARM loans are tied to an index (ie. Libor, MTA, COFI). These indeces have most likely increased since you initally got the loan. Remember that 1st Trust Deeds/Mortgages are long-term loans and thus are not directly affected by the interest rate cuts by the Federal Reserve Board, rather by long-term Mortgage Backed Securities. Depending on your specific situation, you might want to look at the possibilities of a fixed rate loan.
Good Luck :)
Good Luck :)
welcome hj_carr,
you should look to refinance into a fixed rate mortgage. the reason being rates are finally coming down do to investors no longer being scared in the bond markets. this is the reason why mortgage rates had not yet dropped even the the fed had lowered the target rate. in other words the mortgage rates where staying up because bond investors where staying out of the market.
when investors stay out of the bond market the interest rate must rise to draw them in to take risk it is basic economics. however, now bond investors are feeling better about the market and are jumping back in.
now that these investors are jumping back into the market the rates are acting like they should. in conclusion, just refinance and get a fixed rate while you can still get a good one. :d
you should look to refinance into a fixed rate mortgage. the reason being rates are finally coming down do to investors no longer being scared in the bond markets. this is the reason why mortgage rates had not yet dropped even the the fed had lowered the target rate. in other words the mortgage rates where staying up because bond investors where staying out of the market.
when investors stay out of the bond market the interest rate must rise to draw them in to take risk it is basic economics. however, now bond investors are feeling better about the market and are jumping back in.
now that these investors are jumping back into the market the rates are acting like they should. in conclusion, just refinance and get a fixed rate while you can still get a good one. :d
I agree...you'll definitely want to look into refinancing from your ARM to a fixed rate especially since when your loan readjusted the interest rate probably went up at least 3% & the payments are now considerably higher.
Remember, you agreed to that ARM at those interest rates 5 years ago when you signed the loan papers and now that's what you have to live with UNLESS...
Before looking for a new lender & a refinance you might want to contact the current lender and tell them you cannot handle the higher payments. Ask about the possibility of a loan modification so that the loan doesn't end up in foreclosure. Part of the loan modification should be for a current reasonable interest rate (6-6.5%) at a FIXED RATE not an adjustable. Remember though you only have a brief window of time to do this when the interest rate adjusts.
If your lender doesn't go for it then start shopping for that refinance!
Remember, you agreed to that ARM at those interest rates 5 years ago when you signed the loan papers and now that's what you have to live with UNLESS...
Before looking for a new lender & a refinance you might want to contact the current lender and tell them you cannot handle the higher payments. Ask about the possibility of a loan modification so that the loan doesn't end up in foreclosure. Part of the loan modification should be for a current reasonable interest rate (6-6.5%) at a FIXED RATE not an adjustable. Remember though you only have a brief window of time to do this when the interest rate adjusts.
If your lender doesn't go for it then start shopping for that refinance!
Tried to get a fixed rate mortgage, then you will know what your payment through out the life of the loan.
In your mortgage documents it says what is your index based on whether its treasury bonds, libor or something else. It also tells you what your margin is. Look up your index online then add the margin and you will know what your fully adjusted rate is. Your arm will adjust to that. As far as the rate that is going down that is Prime rate (short term debt) and the rate that is used by banks to borrow the money from fed on overnight loans. That most likely has nothing to do with your loan whatsoever.
good tips above - i wish i could agree about the bond market reacting more favorably, however. i've seen rates in this area rise over the past month, by a full point in some instances.
cliff, can you see if you can convince more of those bond traders that it would be a wonderful time to jump back in so i can save some of my borrowers some more money? please?
hj...can it be that your initial interest rate was a below-market rate? in other words, you should have been paying a certain rate of interest, but it was set lower to enable you to better afford the payments, and it was also disclosed to you that your rate was likely to rise when adjustment time came.
if you can afford the current rate, i think you're not very likely to have success in seeking a modification. you'd have to have convincing evidence to provide to your lender to be successful.
cliff, can you see if you can convince more of those bond traders that it would be a wonderful time to jump back in so i can save some of my borrowers some more money? please?
hj...can it be that your initial interest rate was a below-market rate? in other words, you should have been paying a certain rate of interest, but it was set lower to enable you to better afford the payments, and it was also disclosed to you that your rate was likely to rise when adjustment time came.
if you can afford the current rate, i think you're not very likely to have success in seeking a modification. you'd have to have convincing evidence to provide to your lender to be successful.
Who is your lender Hj...if I knew the lender I could give you an idea as to what they would be willing to do?
Yeah, you're simply in the unfortunate position of a higher adjusted rate, resulting from the contract you signed. If your loan officer was doing his/her job, you'd have gotten a call 30-60 days before the reset of your rate to let you know that you likely have refinance options -- I'd want to refinance you!
Actually, some adjustables have resulted in rates lower than the prevailing Fixed rates available. Some folks signed contracts with lower indexes and lower margins, resulting in lower rates..even after the adjustment. It all depends on the mortgage product you buy from the loan officer.
Most borrowers do not usually have a good feeling for the breadth of products available to them, and it is often that the banks (vs. the brokers) do not have the full breadth of products to offer the borrower.
Your adjustable was likely written with a margin of more than 2.225%, maybe as high as 3.25%.....take the time to look into refinancing it with your current mortgage company. If your payments are going to a 'servicer' different from your original lender, go get a couple of different proposals from two different banks...or go to broker. Either way, go get a better deal on your mortgage.
Actually, some adjustables have resulted in rates lower than the prevailing Fixed rates available. Some folks signed contracts with lower indexes and lower margins, resulting in lower rates..even after the adjustment. It all depends on the mortgage product you buy from the loan officer.
Most borrowers do not usually have a good feeling for the breadth of products available to them, and it is often that the banks (vs. the brokers) do not have the full breadth of products to offer the borrower.
Your adjustable was likely written with a margin of more than 2.225%, maybe as high as 3.25%.....take the time to look into refinancing it with your current mortgage company. If your payments are going to a 'servicer' different from your original lender, go get a couple of different proposals from two different banks...or go to broker. Either way, go get a better deal on your mortgage.
I think I'll go by what George said here.
Hj, initially you got a low interest rate, that's what is offered in case of Hybrid ARMs and in fact other ARM options too. And then when the fixed period is over, rates adjust upward compared to what you've got initially. However, if the indexed rate goes down, the adjusted rate increase is not so high compared to what it is usually.
Regards,
Jessica.
Hj, initially you got a low interest rate, that's what is offered in case of Hybrid ARMs and in fact other ARM options too. And then when the fixed period is over, rates adjust upward compared to what you've got initially. However, if the indexed rate goes down, the adjusted rate increase is not so high compared to what it is usually.
Regards,
Jessica.
Great explanation! In addition, even though markets are moving toward smaller yield spreads it still could take some time before this happens. So any given month we could see indexes move up; however, over the next 12 months we should see them begin to trend down. Of course the big factor is if the fed decides to raise the target fed funds to combat inflation. This would almost certainly causes indexes to rise. The next 12 months will be interesting!
Sorry last post was from me I forgot to log back in. :oops:
most adjustable rates are stuctured to go up even though the market may have went down. Besides, rates are higher than they were 5 years ago when you took out the mortgage in 2003. I would definately look into refinancing into a fixed rate since they are under 6% right now.
cliff, the next few days will be interesting! this mortgage market is wacky!
You said it George! With out a doubt everyone is trying to anticipate what the next six months will hold. Several major bond traders are trying to decide on the potential inflation "expectations." As one trader put it ``There's uncertainty with the inflation equation out there and the Fed's ultimate response, and when that response is going to come,'' so will just have to see. One thing is for sure everyone has put the housing story behind them to such an extent that it is no longer affecting i-rates.
One thing is for sure though if/when congress passes the bill to allow $300 billion to be pumped into mortgage markets there will be a lot of opportunity out there for mortgage professionals who are servicing this large market.
One thing is for sure though if/when congress passes the bill to allow $300 billion to be pumped into mortgage markets there will be a lot of opportunity out there for mortgage professionals who are servicing this large market.
Sorry George that last post was from me. For some reason I got logged out.