CNC Mortgage Blog

Don’t panic because you have an Adjustable Rate Mortgage (ARM). Many arms have been very beneficial for the borrowers. Many of the prime mortgage arms, known as 3/1, 5/1, 7/1, 10/1, 7/23 and 5/25 arms would even produce a drop in payment for the borrower.

If your prime arm were coming due today, and it was based off libor ( London Interbank Offered rate) your new payment would be based on libor ( 3.242%) plus a margin of around 2.25%. So your payment would be based on a rate of 5.492%. A good fixed rate mortgage in today’s market would be 6.25%. So if you refinanced today into a fixed rate mortgage your rate and payments would go up plus you would have closing costs.

The situation would be different if libor were at 5%, then your new payment would be based on a rate of 7.25%. In July of 2006 the rate hit 5.78%.

Libor does jump around, so if you are not a gambler and want to sleep well at night, take advantage of a good fixed rate mortgage. Otherwise let it float, look at historical libor or COFI ( Cost of Funds Index) rates that today were at 2.829%.

If you are in a subprime 2/28 mortgage with a margin of 5 or 6 plus libor, strongly consider getting out because it will jump to a rate of 9% or more.

If you have an arm mortgage with an interest only provision your payment will probably go up; partly due to the fact that now you will start to pay down the principle on your loan and that your payments will now be based on paying off the principle in 27 or 25 years.