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There is a change that your rate will adjust down, it all depends on what type of loan you have. You should look up your original paperwork to find out exactly what index your loan is based on, as well as the margin. The margin is how much you add to the index. If that is lower than what you could qualify for in a refinance situation, you might be better off letting your loan adjust. Here is some more informationhttp://blog.creditkarma.com/interest-rates/refinancing-adjustable-rate-mortgages/
Well, I was just using it as an example of a "financial index" that can change frequently that most everyone can relate to. The LIBOR is a little less well known. You are correct that ARM's are not typically tied to Prime. Prime most commonly is known for being tied to Home Equity Lines and credit cards. Sorry, I didn't intend to confuse anyone. Hope this was helpful.
Yes it is important to review your Promissory Note which will provide you with the necessary details of your Adjustable Rate Mortgage. Some ARMs are Interest Only where your minimum payment does not pay down principal. Some ARMs are fully amortizing where the payment does include principal pay down. Having an ARM only indicates that your interest rate can and will adjust at a certain point in time. This is why you need to locate your paperwork and review the terms. At the top of the Note, if it's interest only, it should say something like INTEREST-ONLY PERIOD ADJUSTABLE RATE NOTE. The note will also indicate two key factors in determining if your rate will increase or decrease after the loan adjusts. You will want to find out which "Financial Index" your rate is tied. For example, two very common indexes are the Prime Rate and the 1 YEAR LIBOR Index. Next you will want to scan your note for information about your loans "MARGIN." This will determine how many points of interest you will need to add to the INDEX to arrive at what is called your loans "Fully Indexed" interest rate.You can look up most index rates in the Wall Street Journal or simply try Google to find out where your index is right now. But keep in mind that these indexes will most likely move over the next 2.5 years.
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