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The other shoe did not drop! Your LIBOR ARM mortgage

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Mortgage and Lending with SecurityNational Mortgage

Important Information About Your LIBOR ARM Mortgage And How Your Rate Can Change.

Several months ago I posted some information about the possible surge in the LIBOR rate that could impact millions of mortgages in the US. 

liborBased on the recent history at the time it was possible that LIBOR rates could soar putting many Americans in financial jeopardy.

The good news is that although the LIBOR did continue to rise for a brief period in late Oct 08, it has recently tanked. The 6 month LIBOR rate has fallen almost 4% in the last 8 weeks. It is almost at zero.

How does this help homeowners with LIBOR based adjustable mortgages?

In some instances it means that homeowners with a mortgage tied to the LIBOR will see their payments decrease at each adjustment period.

If you have a conventional Fannie Mae or Freddie Mac LIBOR ARM mortgage the above sentence is talking about you.

If you have a sub-prime or any of the alternative mortgage loans written in the last 2 - 5 years you might not have much to party about.

Why? Because many of the sub-prime and Alt-A mortgages have a clause in the adjustment rider that says that your rate will never go below the start rate.

How do you know which loan you have?

How do you determine how low you rate can or cannot go?

You want to dig out your mortgage papers - that would be the big packet of documents that you received from the settlement agent at or soon after your closing.

You want to look for a document called the Adjustable Rate Rider.

You want to look for a section that is usually titled - "Limit On Interest Rate Changes".

This paragraph will spell out the rules for your mortgage's adjustments.

All ARM mortgages have caps or limiters that stop your rate from skyrocketing or dropping through the floor all at once. There are two types of caps. Perodic - these occur at each adjustment. And Life Caps - these caps set the maximum/high  and in some instances the minimum/low that your rate can float up or down to.

This is in place to protect you when rates spike and the lender when rates tank.

If you have an LIBOR ARM or any other adjustable mortgage you should be aware of the adjustment caps.

 

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