All indications point to rates to go up in 2014:
Some economists predict that conventional 30 year fixed may go up to 5.5% by end of 2014. It is still a bargain - considering that it was 9.19% in 1974, 13.88% in 1984 and 5.84% in 2008.
Why Adjustable Rate Mortgages (ARMs) may benefit you:
Per chance if you are still holding the ARM when the note resets, here's what will happen. As your loan originator - I will go over all of your loan options for review.
Approximately 10% of current outstanding mortgages will reset in the next few years with majority of them in mid 2011. Depending on borrowers income and property valuation, refinancing may or may not be an option. ARM applications peaked at 36% in 2005 to currently at 6% as borrowers shift to a 30 Year Fixed loan.
In order for you to calculate what your Adjustable Rate Mortgage will adjust to, you need to find out the following items:
If your current ARM is 3%, Index Rate is 5%, Margin is 3%, Adjustment Cap is 4% and Lifetime Adjustment Cap is 12%. Then the new rate is 7% (Current + Adjustment Cap).
If your current ARM is 5%, Index Rate is 5%, Margin is 3%, Adjustment Cap is 4% and Lifetime Adjustment Cap is 12%. Then the new rate is 8% (Margin + Index).
If your current ARM is 6%, Index Rate is 5%, Margin is 8%, No Adjustment Cap and Lifetime Adjustment Cap is 12%. Then the new rate is 12% which is the maximum Lifetime Adjustment.
In the above examples, we are to consider the lower of the two from the following calculations:
a) Current Rate + Adjustment Cap or
b) Margin + Index.
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