Adjustable Rate Mortgages
Do you have an ARM?
Did you know that based on the current interest rate markets, most ARMs are scheduled to increase to 5.375% if the adjustment were to happen today? If rates keep trending up, that number could be 5.500% or higher.
When the rate changes on an ARM mortgage, the new interest rate is established by adding a margin to the index, which is the benchmark interest rate used. The overwhelming majority of ARMs use the 1 Year LIBOR (London interbank offered rate) for the index. As of the date of this article, the 1 Year LIBOR is 3.118% and almost all margins for ARM loans are 2.25%. So, you add those two numbers together and that is how the lender calculates the new interest rate.
And if the LIBOR index continues to increase, ARM rates will continue to rise as well. A little over ten years ago, the LIBOR was over 5%. If that happens, rates on ARM loans could go to 7.25% or higher, which could price you out of your home.
Take some time to evaluate refinancing to a fixed rate mortgage. If you can swing the payment, a 15-year fixed is a great option as you will pay off your loan much sooner and save tens of thousands of dollars in interest compared to a 30-year fixed. Of course, a 30-year fixed is a great option as well as it eliminates all interest rate risk for the future.
Please call us at 708-531-8388 with any questions or complete the form below. One of our knowledgeable loan officers will walk you through all of your options