Many folks in Snohomsih County Washington have completely forgotten they have a mortgage that will soon require a dramatic increase in monthly payment.  They have forgotten that their home loan has a 2, 3, 5 or 7 year fixed rate period and then . . . WHAM!  For instance, if your last loan was a sub-prime loan you almost certainly will face a healthy increase in monthly payment after 2 or maybe 3 years of fixed rate bliss.  Even if you have a so-called prime mortgage you may have a 3, 5 or 7 year fuse on your fixed rate.

Don't get me wrong, adjustable rate mortgages (often called ARMS) do have a place in home financing, especially if your original plans were to sell and move- on within the initial fixed rate period.  After all, why pay 30 year fixed interest rates when you only intend to use the mortgage for 5 years.  A good broker would have discussed this strategy with you when you closed your loan.

Unfortunately, lenders who service your ARM have the annoying tendency to remind you of the significant change in your monthly payment with minimal notice of just 30 - 60 days.  This will often leave you clamoring to seek a refinance alternative at a time when rates are less favorable.

Those lenders don't make it easy for us to know how significant our interest rate, and hence our monthly payment, will change.  So, I'm going to tell you how to do that for yourself right now.  Just follow these easy steps:

Verify you have an adjustable rate mortgage.  Get out that folder of loan documents the escrow company gave you when your current loan closed.  Look at the "Promissory Note" document.  If it says anything about adjusting rates, adjusting payments, margins or indexes, the chances are you do have an ARM.

1. Look for the paragraph that talks about the "MARGIN" on your loan.  This figure remains the same for the life of your loan and in many ways is the same as the markup on any retail product you might purchase.  In this case it is the lender's markup on the cost of money.  This margin guarantees the lender a profit for the life of your loan.  Write down the percentage figure called "MARGIN".  It will likely be between 2% and 7% and may have three decimal points (ex. 3.375%).
2. Now, find the paragraph that talks about the "INDEX" on your loan.  It will likely say something like LIBOR, MTA, COFI, COSI, T-BILL, etc.  This is the part of your mortgage interest rate that adjusts up and down with economic cycles.  It is usually set for an entire month on the first day of the month.  Write down the name of this "INDEX".
3. Now, go to http://www.cnnmoney.com/ on the internet. Click on the FINANCIAL tab.  The various INDEXES can be found expressed as a percentage with 3 decimal points (ex. MTA - 5.146%).
4. Finally, add the "MARGIN" percentage (step 2) to the "INDEX" percentage   

(step 4). The new total is approximately what your new mortgage interest    rate would be if your loan had adjusted this month.  Since all INDEXES have been trending upwards for over a year, the calculation will likely be worse next month.

6.  If this figure for your mortgage is higher than you would like, you should contact your lender and if you do not have one please feel free to click on the links below and I will have a preferred lender contact you about all your financing needs.