LIBOR, one of the largest indexes that Adjustable Rate Mortgages are based upon, has experienced a huge jump. If an ARM will be resetting in the near future, the holder of that mortgage may want to consider refinancing it so that the payment doesn't double or triple, especially if they will be going from an interest only to fully amortizing term. While fixed rates are still lowm this would be a good time to refinance.
LIBOR, as well as the Fed Funds Rate, are rates that banks charge each other. The Fed has set the Fed Funds rate at 2%, and didn't change it at yesterday's meeting. Banks are hiking this up closer to 6%. The same is happening to LIBOR. The reason is due to a lack of confidence that banks repay funds borrowed from each other. The AIG scare, IndyMac Bank, Lehman Brothers, Merrill Lynch, Bear Stearns, etc. have spooked banks into thinking that they may not be paid back. And a 2% rate is just not enough to justify the risks of lending in today's environment. There is a lack of trust between banks as they try to figure out "who will go down next". It's definitely a Fear Factor environment today.
The bond market closed up 41 basis points today after having closed 88 basis points down yesterday. Rates move with the bond market in an inverse direction so if the bond market is up, there is a chance mortgage interest rates will drop when we get them tomorrow. This is not the highest the bond market has been today. It was up 44 basis points at about 9:45 am this morning.
If you, or anybody you know, has an ARM that will be resetting, contact us and we will see if we can get the mortgage fixed and keep the payment down.
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