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Should You Refinance Your ARM, Or Let It Adjust Lower?
Should You Refinance Your ARM, Or Let It Adjust Lower? July 13, 2010 by · Leave a Comment 
 

If your adjustable rate mortgage is due to adjust this year, don’t go rushing to replace it just yet. Your soon-to-adjust mortgage rate may actually go lower. It’s related to the math behind the ARM.
Conventional, adjustable-rate mortgages share a common life cycle:
There’s a “starter period” in which the interest rate remains fixed There’s an initial adjustment period after the starter period called the “first adjustment” There’s a subsequent annual adjustment until the loan’s term expires — usually at Year 30. The starter period will vary from 1 to 10 years, but at the point of first adjustment, conventional ARMs become the same. A homeowner’s new, adjusted mortgage rate is determined by the sum of some constant, and a variable. The constant is most often 2.25% and the variable is most often the 12-month LIBOR.
As a formula, the math looks like this:
(Adjusted Mortgage Rates) = (12-Month LIBOR) + (2.250 Percent)
LIBOR is an acronym standing for London Interbank Offered Rate. It’s the rate at which banks borrow money from each other and, lately, LIBOR has been low. As a result, adjusting ... more

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