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What will my ARM adjust to?

I was reviewing my original agreement and the program states that I have a 6-Month LIBOR, 24 Month initial Rate, 3/1/6 CAPS (Discount Feature). 

What does that mean. I originated the loan in 2005 and it was a 5 year ARM.

Current loan information $252,000 @ 7.25%
  • April 24 2011 - Skokie
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Answers (17)

Frank, as you know, especially in this business, "Haste Makes Waste."
Paying attention to details is a pre-requisite. I think that was the point Andrew was making. Also, if you are that busy, the ability to manage priorities is essential.

Happy funding, Rudi
  • May 04 2011
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@ Andrew sorry to have upset you. I was busy locking loans and getting loans approved outside of this website so I may have over looked a couple of the previous postings.
  • May 04 2011
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Frank,
Still good info
  • May 03 2011
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Frank...We figured it out a month ago...did you not read the previous posts?
  • May 03 2011
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Sounds like you have a sub prime loan and then the start rate is the floor rate so most likly no ovement in Rate.

When taking out an ARM you need to the following
1. Index
2, Margin
3. Floor Rate
4. Interest rate caps.

IF you would like I can review your promissory note for you. I'm in IL can can review it for you at NO Cost and explain to you what will happen with your loan. Need to see copy of Promissory Note.
  • May 03 2011
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You may be able to convert to a lower fixed rate.  Who services the loan?
  • April 28 2011
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You have a floor rate of 7.25% because the loan has had the potential to adjust every 6 months since 2007. You will see the rate move up once the 6 month index goes over 1.5.
  • April 24 2011
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OK, so your caps are 1% maximum every 6 months.  The margin is 5.75%. 

Again, the current 6-month LIBOR index is .434 (this is subject to change anytime, so it will be whatever it will be the day your rate adjusts).

As of today the index (.434) + margin (5.75) = 6.184 (this rate rounded to the nearest .125 = 6.125%).  This is lower than the allowable cap of 1% of your current rate.  So in this case, the rate would decrease to the allowable cap of 6.25% (current 7.25% rate minus the maximum 1% allowable cap). 

your won't know for sure what the rate will adjust to until the day it happens (it depends what the current 6-month LIBOR index is that particular day) 

Hope this makes sense to you.  Let me know if you need more clarification

* But again, ask your lender what the floor rate is.  If the floor rate is higher than 6.25%, the floor rate will then be you next rate
  • April 24 2011
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Profile picture for simjq
It says that the interest rate will change on the first day of May 2007 and on that day every six months thereafter. Beginning with the first Change Date, my interest rate will be based on an Indix. The Note Holder will calculate my new interest rate by adding 5.75% to the current Index. The Note Holder will then round the result of this addition to the nearest .125%. My interest rate will never be increased or decreased by more than 1% from the rate of interest I have been paying for the proceeding 6 months. 
  • April 24 2011
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Good point Clay.  The floor rate is usually the current index + margin, but if this is a subprime loan, a lot of those subprime loans back then had bad features.

simjq, you will definitely want to check through your old paperwork and see what the "floor rate" is.  That would be the lowest your rate could ever adjust too no matter what
  • April 24 2011
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Maybe, maybe not, they may have a floor rate same as the start rate. Have we determined if this is a 2/28 or a 5/1?

6-Month LIBOR, 24 Month initial Rate, 3/1/6 CAPS (Discount Feature).
  • April 24 2011
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You're correct Andrew.  I was just trying to explain how it works to simjq.  If the 6-month LIBOR + the margin are within the cap range, the rate will adjust to the index + margin. 

Example, if the margin is hypothetically 6%, that plus the current 6-month LIBOR index of .434 = 6.434%.   6.434% then will be the new rate since it falls within the maximum cap range allowed.
  • April 24 2011
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John,

You don;t have the margin!  How can you say what it will adjust to without the margin?
  • April 24 2011
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Also, if your rate has already been adjusting, it can now only adjust maximum 1% each year.  So if your 7.25% rate is not the intial rate, the highest it could be during the next adjustment is 8.25% and lowest would be 6.25%.  More than likely it will be 6.25% (again because the 6-month LIBOR index is currently so low)
  • April 24 2011
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Your loan has a 3% max adjustment cap on the 61st month, 1% maximum adjustment each year after, and 6% lifetime cap. 

So the highest your rate will be on year 6 is 10.25%, and the lifetime max rate is 13.25%

Come the 61st month, your rate will most likely adjust down because the market is so good.  It will adjust to the 6 month LIBOR index + whatever your margin is (you want to look through your paperwork to find out the margin)

Current 6 month LIBOR is .434, so if your margin is hypothetically 2.25, those add up to 2.684.  Since the 1st adjust cap is 3% maximum, it won't adjust downward to 2.684 because that's more than 3%.  Your rate would adjust down to 7.25 minus 3% = 4.25%

*** I just noticed you said your initial rate was for 24 months?  I explained the above on a "5 year ARM".  The same thing would apply on a 2 year ARM, with the initial 3% cap taking place on the 25th month instead of the 61st
  • April 24 2011
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There are millions of people who got similar loans as your did back then and many of them turned into short sales/foreclosures because they either did not understand what they were signing or did not care since they thought the market would go up for eternity and therefore they could always just easily refinance.
Since the market has gone down big time since then you need to see if the value of your house is more or less than the 252K mortgage. If it is less or equal to that price you will not be able to refinance and will either have to live with your mortgage payments going up or become another statistic if you need to get out.
Contact your friendly lender who made you that loan in 2005, if they are still in the business, and ask what the details mean.
  • April 24 2011
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If your initial rate was only 24 months it was a 2 year arm and the rate should have already adjusted.

You need to find the Index (6 Month Libor)
and the Margin.  I have a feeling your margin will be on the high side!
  • April 24 2011
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