ARMs have been strained,
………………………….. ARMs have been twisted.
Since Lehman failed you may find that…
your ARM as around your own neck?.
Ugh… for current home owners with soon-to-adjust adjustable rate mortgages [ARM], the recent financial market upheaval worldwide may lead to a personal catch-22.
This is mainly because most conforming ARMs made after 2003 are based on an index called “LIBOR” [London Interbank Offered Rate… this is the rate that banks charge one another] and LIBOR is up an uncharacteristic 2 percent since September. Ooof.
Historically, LIBOR has tracked the U.S. treasury market, plus about 1/2-percent. This suggests that banks are only slightly less likely to default versus the U.S. government. That communicated that banks, at thte time were only fractionally less likely to default than the US Govt.
Well guess what?
Banks aren’t that confident in one another anymore. Oops. Now you have seen a diverging trend between the two indices. Wow, that makes me feel smart! [Breathe Chris, breathe….]
Today, that spread is around 4.500%.
The LIBOR spike is hurting homeowners with ARMs because adjusted rates on conforming mortgages are often calculated by adding a margin of between 2.250% and 2.750% to the current 12-mo. LIBOR rate.
The big group at risk? You guessed it…sub-prime mortgages, their margins are even more steeperer. [There’s my awesome grammar again! Smart felling from before… it’s gone now.]
In general, ARMs are not bad in and of themselves, so be weary of News anchors that try to pass off they know what they are talking about… they are just reading this 10 minutes before their broadcast and know likely less than you do if you have a good mortgage professional.
Your mortgage professional, the good ones at least, likely explained that ARMs are typically lower rates because you are taking some of the risk yourself. Unfortunately, current market conditions are worse than could have been imagined 3-5 years ago. If you still have 18 months or more on your ARM, you are in a better position than those with less than that, but to be sure, if you have any questions, call or email your loan officer, or a CMPS like me, to talk about how LIBOR may impact your adjusted mortgage rate and payment.
For many of us… I personally have an ARM as well, it’s less expensive to refinance into a new home loan that to just let the adjustment happen… especially if you can qualify for an FHA loan.
Orlando Short Refinances are a relatively new phenomenon and all the chips haven’t fallen yet as to how these are going to shake out… that being said, they may be an alternative to the ugly process of a short sale. [Which is anything BUT short!] It is important that you know that I am staying on the cutting edge along with a couple other high-profile loan officers from around the country. To get in on the front end of the wave, Apply for a FHA Short Refinance here.
(Image courtesy: Wall Street Journal Online)