| You cannot go from an adjustable rate to a fixed rate | | | | No one ever plans to be in an adjustable rate |
| mortgage and lower your payment. The low | | | | mortgage when rates are going up and you may be |
| introductory rate on your ARM was artificially low. | | | | asking, what makes the payment on an ARM go up |
| The loan officer probably told you that by the time | | | | anyway? The rate for an ARM is calculated by |
| your mortgage adjusts, you can refinance or sell to get | | | | adding together an index and a margin. The |
| out of it. Unfortunately, that payment may be more | | | | introductory fixed rate you got in the beginning of the |
| than you could afford already. Now, you | | | | ARM is not the actual rate. |
| haven’t made any plans to move so you are | | | | Every ARM is different and you have to check your |
| looking at a refinance and not liking what you see. | | | | mortgage note but most have the introductory fixed |
| You cannot go from an adjustable rate to a fixed rate | | | | part for 1 to 10 years and then it adjusts after that. |
| mortgage and lower your payment. The low | | | | But the mortgage has been adjusting the whole time |
| introductory rate on your ARM was artificially low. | | | | you just did not know it. When your introductory |
| The loan officer probably told you that by the time | | | | period is over, the payment starts changing. |
| your mortgage adjusts, you can refinance or sell to get | | | | You have to check your mortgage note to find out |
| out of it. Unfortunately, that payment may be more | | | | how much it will rise on the first adjustment. Some |
| than you could afford already. Now, you | | | | ARMs have a 5 point first adjustment cap! That |
| haven’t made any plans to move so you are | | | | means when your introductory period is over, your |
| looking at a refinance and not liking what you see. | | | | interest rate could go up 5 points. |
| Most people have no idea what their mortgage note | | | | Why would your ARM adjust only upward, can they |
| says. Some do not even keep copies of it. You | | | | go down too? Yes they can go down but that is not |
| only focus on your payment. If you feel comfortable | | | | what is happening in the market right now. Just a |
| paying it, then the mortgage could be a disaster waiting | | | | couple of examples of different indexes are the |
| to happen and you would not know it. | | | | Treasury and the Libor. The Treasury has gone up |
| Advertisers all over are telling you to get out of your | | | | from 1.595% in September of 2004 to 4.863% in |
| adjustable rate mortgage and refinance into a fixed | | | | September of 2007. The Libor has gone up from |
| one. And that could not be a smarter idea right | | | | 2.1695% September of 2004 to 5.53500% in |
| now. You may know your loan is adjustable so you | | | | September of 2007. Your margin is the number that |
| check into a refinance. | | | | stays the same so add the margin to the index and |
| When you got your mortgage your interest rate was | | | | that is your rate. You can find your margin on your |
| 5.00% for example. When you inquire about a fixed | | | | mortgage note also. Most loan officers do a horrible |
| mortgage rate you find out they are around 6.250%. | | | | job of explaining an adjustable rate mortgage to their |
| On a $230,000 mortgage, the difference in payment | | | | clients. They do not even know exactly how they |
| would be roughly $180 more than you pay now. And | | | | work but they do know how to sell them. |
| you proceed to freak out. | | | | If you are planning to stay in your home, you do not |
| But what you are missing is the payment you enjoy | | | | have a choice. Even if your adjustment period is a |
| now is only good for another couple of months. The | | | | few years off, property values are dropping all over. |
| payment will go up anyway. The question you should | | | | Your house may not be worth what it is today. Your |
| be asking is how much? At least with a fixed rate | | | | payment will go up either with a refinance or with the |
| mortgage you know what your payment will be | | | | adjustment. Which would you rather have, a 6.25% |
| forever. It will never change. | | | | rate or a 10% rate? |