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Actual Numbers of my ARM... Please help

I don't know what any of this means... please advise

Interest Rate 5.875
Lifetime Cap 5.000
First Adjustment Cap 5.000
Margin 2.750
Annual Cap 2.000

Thanks!
  • January 14 2009 - Westerville
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Answers (32)

Best Answer

The "index" + the margin (2.75%) = Rate (within the caps)

Most Likely your index is to the 1 year treasury or 12 month LIBOR rate.

Very doubtful you would adjust into a higher rate than the initial 5.875% if it is adjusting anytime soon.

  • January 14 2009
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Danny

Thank you, I'm with Wells. Not sure if they are more liberal when it comes to loan modifications with respect to other banks you might have dealt with.

Let me know if you have any experience with Wells.

Thanks!
  • January 14 2009
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Profile picture for Bentley Advisors

If you're paying principal&interest now, disregard my comments re: interest-only.  Don't sweat that aspect of it.  See if you qualify for a refi.  If you're having a tough time keeping up, call your lender every couple of months to see if there's anything new they can do to help you lower your pymts.  If they can't do anything now, they may have made a change that allows them to at a later date.  Every day, they are changing rules re: loan modifications.  Fannie now allows lenders to modify loans for people who are still current on pymts but "at risk" of defaulting.

Good luck.

  • January 14 2009
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That is UGLY!?!

Oh my god. There's a brick on the floor between my legs.
  • January 14 2009
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Ugly
Here is an example of a Subprime note with a floor as the start rate. You can get a feel of why many foreclosures happened.
  • January 14 2009
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Danny

My monthly has a portion of it going into the principle, but that doesn't mean it won't blow up by your comment... (i definitely need to check with my bank to see if monthly won't change into a monster (e.g. principle component of my monthly won't go up by whatever condition)

I can't refinance because my house is probably worth less than my remaining loan balance... (i've contacted my bank to see if they can refinance me or adjust my ARM into a 30 year fixed)... yes, my goal is to get into a stable product.

Thoughts?
  • January 14 2009
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Profile picture for Bentley Advisors
One question that wasn't asked...are your monthly pymts interest-only or fully-amortized (i.e. principal&interest)?  At least in CA, many ARMs were setup for interest-only pymts.  If that's the case, you need to know that when your rate adjusts, it's highly likely that your pymt will go from a interest-only pymt to a fully-amortized pymt over the remaining 25 yr term.  This is one reason why people should fear a rate adjustment although the impact is less of a concern w/ the low indexes.  The other reason it's been such a concern is due to subprime margins that could be north of 5%.  That coupled w/ a loan coming off an interest-only pymt could make for a monster headache.

Did you mention why you aren't refinancing?  If you can qualify, I'm sure you'd gain peace of mind and a reduced market fixed rate below 5.00% w/ a breakeven point between 2 and 3 yrs.  You should post your loan scenario on Zillow.
  • January 14 2009
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Yes - Correct.....it will be mentioned some where in the 5/1 disclosure.
  • January 14 2009
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Barry

Yep, I think we both arrived at the same conclusion... I think...


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Profile picture for thebittersea
Barry...

Let's go back to the formula.

If my rate is Index + Margin... then that means the minimum rate is at least the Margin, which is 2.75%!? Right?
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Depends on the investor/lender,

Most just reference the "margin" as the lowest rate the loan could adjust down to. I'm betting that is what you will find after reviewing the doc's.
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Barry

I will check with the bank tomorrow to see if there's a Floor Rate or Rate Can't Go Below xxx%.

If there is a floor rate condition, it should be spelled out and not hidden in the fine print, correct?

I will try to look through my loan docs more closely again to see if I can find my floor rate. (you're right, the bank will never leave that sort of detail out, they need to get paid).

What would be a floor rate? Will it typically be around my initial fixed rate?
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Socal- very nice! Seeing that amount of history should help to sleep a little better!

Bitter- on the "non-conforming" could be the name of the disclosure for the bank/investor who was pooling the product. Maybe the margin is a little higher vs a 2.25 for lower ratios or higher credit scores for this lender.

Not to worry- the instrument outlines the current parameters you have listed in previous post- which cannot change. The only area where you were unsure - is the language regarding a "floor rate" or rate cannot go below margin. There are litterally hundreds of these disclosures - the more standard are the Fannie/Freddie - still lenders could manipulate margin and caps to a degree.

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Socal

Ditto that!

I DO NOT think folks with ARM really understand what you have just elegantly explained.

Does my ARM parameters one of the 'better' ones? I can't imagine that all of the new media's report on "...all hell will break loose when ARM resets for millions of americans..." are completely without merit.

I believe someone earlier has indicated that there are some ugly ARMs out there that people signed up that would really hit the bottom line when they reset.

Care to give me a couple of example of bad ARMs?
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Profile picture for SoCal Engr
"What about the myth..."

Try doing a search on "1 year treasury historic rates".

From late 2001 thru 2004, the rates were in the 1's and 2's. With the 2.75% margin, your interest rates would have been in the 3.75-4.75 range...good, no?

2005 thru 2006 saw a steady climb from 3 up to 5, and the corresponding rates would have been in the 5.75-7.75 range...not as good, yes?

2007 thru 2008 shows a steady decrease, starting at a high of 5 and dropping to 0.5 in Dec '08, corresponding to 7.75 down to a smile-inducing 3.25 (assuming no floor).

In 2000, rates were in the 6's. 1995 thru 1999 predominantly in the 5's. This corresponds to rates around 8.75 in 2000, and 7.75-8.5 in the late '90s.

"Bad years" were 1985 thru1990, where rates consistently stayed in the 6's and 7's, and spent some time in the 8's and 9's. This is where that 5% lifetime cap on 5.875 would have come in handy.

So...

There will be times when the performance of the index will be in your favor, and you will enjoy good rates. However, there may also be times when the index goes against you...and you need to be able to weather these times. Unfortunately, when your ARM is high...there's a good chance that other products won't be too different - so there may be nothing worth moving to.

At 5% on $200K, the payment is about $1,073. At 7.5%, the payment is about $1,400. At 10%, it goes to $1,755. At 3.5, it drops to around $900. Just remember, it can...and does...move in both directions.

This is why I prefer fixed rate products. I tend to be more long term (have owned two houses over 25 years), so the predictability of the fixed is worth it to me. 
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Barry

Making sure that you didn't miss my comment about "Non-conforming" part of loan title...

"Non-conforming" sounds like it has some negative connotations to it...
Does the fact that my loan is "Non-conforming' affect your advise and my situation in anyway?

Thanks again!
  • January 14 2009
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You are welcome!

Correct on the math- hopefully it will stay down and give you a few years for other areas to improve!

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Berry

I just re-read my loan papers one more time and It says "Non-conforming 5/1 Intermediate".... I think we didn't have all of our ducks in a row when we applied for our loan.




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Barry

Thank you for taking the time and putting all of this in simple terms.
I'm not as worried as I have been for the past... well a couple of month. I never thought that I could get some real answers through zillow.

At any rate, I think the catch is the INDEX.

Let me verify one more piece of math with you...
If I can't afford to pay more than 5.875% ... my tolerance for INDEX is basically 5.875% - Margin(2.75) which is about 3.125%... In other words, if 1 yr- Treasury goes above 3.125% from the existing 0.49%, I might have to think of other alternatives then.

Fingers and toes crossed on the INDEX... high doubt that it will stay this low to very long.

Thanks!

  • January 14 2009
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Oh- one other observation: you wrote "non-conforming" did you mean "non-convertible"
  • January 14 2009
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Bitter-

I just checked a 5/1 Arm disclosure from 2007 with the one year treasury as an index. It mentions the rate cannot increase or decrease beyond the "caps" on the loan, nor can the rate go below the "margin".

So the good news -  for now you have a decent rate at 5.875% with an ARM that will not break the bank and will improve your rate if things are similar in 2 years.

Bad news- we do not know where the one year treasury will be in two years. If it is up- hopefully values will be as well!

Take Care!

  • January 14 2009
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Berry

Is your interim ARM a 5/1?
Non-Conforming 5/1 Intermediate ARM

When is it due to adjust?
March 2011

Conforming loan amount? (I'm assuming it's the Principal Amount of Loan)
Approx $243,000
  • January 14 2009
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More than one thread going-

 "what about the myth that ARM will adjust to an unaffordable monthly payment?"

There were several different types of ARM's originated over the past several years. Some have higher margins, with a variety of indexes, negitive amortization features and some with "no doc" income/asset type parameters. Some do adjust into unaffordable due to minimum payments are recast, the borrower cannot refinance due to value and more stringent underwriting guides.

Is your interim ARM a 5/1? When is it due to adjust? Conforming loan amount?

  • January 14 2009
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That is correct and very low for a year.
  • January 14 2009
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Profile picture for thebittersea
so

0.49% (1 yr- treasury index) + 2.75 (margin) = 3.25% ?!@#!@#

that can't be... my reset ARM is actually going to be lower than my current 5.875% fixed phase of my ARM?!
  • January 14 2009
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Barry, what about the myth that ARM will adjust to an unaffordable monthly payment?

I think a lot of consumers of ARM like me are uneducated as to what lies ahead beyond the fix phase of our ARM...

:|  
  • January 14 2009
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It's probably a 7 or 10 Yr Jumbo loan. Ask the quoter if this is a Libor based arm, and if not ask what index it is based on. Margin at 2.75 is slightly higher than average. The index will not be on the GFE unless they named the loan, 5/1 Libor Arm. 
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It's the 1-year Treasury Index.


  • January 14 2009
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I think it's the Wall Street Journal Prime( Western Edition)

Does this sound like an Index normally used for ARM?
  • January 14 2009
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Lewis&Barry

I couldn't find the INDEX for the life of me... no where to be found on the loan paper... especially around where I found all of the other numbers "life time cap..."

At any rate, no pun intended... my rate could go up to 10.875% right off the bat during the first Adjustment and could potentially stay there for the lifetime of the loan?

Where does the INDEX play in any of these numbers
  • January 14 2009
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