What is an ARM?

Okay the full name is an Adjustable Rate Mortgage, what does it mean, well hate to sound wishy-washy but that all depends on the terms. Now not all ARM’s are treated the same.  I am actually in an ARM that will be adjusting down come next April if the projections are correct.  The best way to figure this out is to go to your Mortgage, if you don’t have a copy, just look it up on your computer under public records, in your county,  usually on pages 17-20 and you are looking for your ARM addendum.  Please do not hesitate to call me and I can help you walk through it or actually dig out the info for you.  What the key term you need to look for is what index is your adjustable Rate Mortgage tied to?  Could be LIBOR, or 1-year Treasury Note(this is what mine is tied to).  Then you have to know what your “premium” is, that is added to your named Index.  IE, mine is 2.75% added to the current index, mine is changing next April, and the current forecast just went down and they are projecting the 1-yr US treasury rate index to be .75 plus my premium of 2.75%, yes you got it, that isn’t a bad deal, my new rate if all is on schedule with the forecasts will actually adjust down from 4.5% to 3.5% come next April.  But we won’t know until the “change date”, that is also outlined on the ARM addendum.  Mine was stated as a 5/1 ARM, that means, it was set for 5 years, then every year on that same date it reads the index again adds the 2.75% premium and adjusts the rate for the next full year.  So I will only be locked in at the 3.5% for 1 year then it can change again, in the meantime I need to keep a watch on it to see what the projections are going to be and to see if it makes sense to re-fi or stay with what I have.  There are also Floor and Ceiling points in the addendum, meaning how low it can go and how high it can go, and perhaps how much is the cap it can jump in a given time period.  Now mine can only go as low as the 2.75% but it can raise all the way to 9.5%.  It can be a gamble, that is why it is wise to clearly understand the terms prior to signing up for such a program.  Again every ARM is different, please feel free to call or email if you want some help deciding on such a program or if you are in a program and are not sure what to do now.

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~ by debt2dreams on October 14, 2008.

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