What happens when ARM is up?

[leslie826]

I know I should call my mortgage company but, to be honest, I am kinda scared to find out. We have a 5 year ARM that is up in October. What will happen at that point? Can they jack up our rate to anything they choose? Anyone have any experience with this? Would you be willing to share what your monthly payment was before and after? When we bought the market was booming. We simply thought we'd refinance when we got to this point. Never in a million years did we think our house would be worth only half of what is was when we bought and refinancing wouldn't be an option.

 

[Stitch And Friends]

There is usually a limit to how high your rate can be raised once the ARM is up and should be documented in your origional loan paperwork. I would try to find you paperwork and see what it says. I know it's scary to hear the answer, but I would also try calling your mortgage company as soon as possible. Someone should be able to walk you through how high your rate can go. It doesn't hurt to ask if there may be any refinancing options available to you if you go through the same lender. The earlier you ask the better, because if there is an option available it can sometimes take a while. And if they can't do anything for you, the earlier you know what the potential rate increase is, the earlier you can start planning for it. Good luck to you

 

[LilSweetPeaPhoto]

We had a 5 year ARM. It expired last year. When it expired we adjusted to the current rate which was LESS then our ARM was! That's the thing about the ARM, it goes to whatever the current rate is (or so is my understanding, my DH does all the finances). We're about $70K upside down on our hour, so for now we're staying on the ARM. It's locked for a year, and will adjust again at the end of the year.

 

[marius97]

Our 5 yr ARM reset last July. I was so scared. Called finance company...they were worthless. They couldn't even tell me which interest rate that they use to calculate the new rate. They wouldn't tell me what my payment would be if the rate reset that day. They would only say that 30 days prior to the reset, I would get a letter saying what my new payment would be. Thanks for nothing. I lived in fear for months. Turns out that our payment went down about $100/month (about 20% of our mortgage.)

 

[msmayor]

I know I should call my mortgage company but, to be honest, I am kinda scared to find out. We have a 5 year ARM that is up in October. What will happen at that point? Can they jack up our rate to anything they choose? Anyone have any experience with this? Would you be willing to share what your monthly payment was before and after? When we bought the market was booming. We simply thought we'd refinance when we got to this point. Never in a million years did we think our house would be worth only half of what is was when we bought and refinancing wouldn't be an option.

No, not of their choosing...the rate change is governed by the documents you signed at closing.

Your mortgage loan documentation should spell out exactly how they adjust the rates. The document should indicate what "index" is used as the base percentage, and usually an amount is added to that base amount to arrive at your new rate.

For example, the base rate could be prime, could be the Federal Funds rate, could be the 10-yr Treasury Bond rate. To that rate you may have to add 1, 2, 5%...whatever is defined in your documents. Once you know what the base rate is, it should be easy to determine the current value of that rate via the internet.

Some adjustable rate mortgages have no limit on the initial rate change...meaning that if your current "teaser" initial rate was 4% but the rate at which the mortgage should adjust is 8%, your rate will double. Some limit the up or down movement of the rate to no more than 2%, meaning that even if your computed rate comes to 8% the most it can be raised to is 6%...2% above your current rate.

Many adjustables will limit rate increases/decreases to 2% each year, with a 6% ceiling on how high it can go...but the ceiling may be applied to either your starting rate OR your first adjusted rate...again, your documentation should spell out all the terms.

Its impossible for anyone here to tell you what it will be, since every adjustable mortgage has its own terms. Read your paperwork. All the information is there.

 

[PatsMom]

Your loan documents should spell out what the benchmark used to determine the new rate is, the maximum rate allowed, etc. As someone said, it could even be lower if you are lucky. With interest rates being so low, most people that I know who have adjustable rate mortgages are doing OK if they can't refinance into a fixed rate right now because of a lack of home equity.

They just hope that when interest rates start rising it will be because the economy is doing better and their housing values will recover to something close to what they owe!

 

[msmayor]

Our 5 yr ARM reset last July. I was so scared. Called finance company...they were worthless. They couldn't even tell me which interest rate that they use to calculate the new rate. They wouldn't tell me what my payment would be if the rate reset that day. They would only say that 30 days prior to the reset, I would get a letter saying what my new payment would be. Thanks for nothing. I lived in fear for months. Turns out that our payment went down about $100/month (about 20% of our mortgage.)

Probably because customer service may not have full and complete access to ALL the terms of your loan...but you do. All you needed to do was pull out your mortgage document and read it. Find the base rate, look it up and add the additional percentage. There's no reason you should have lived in fear for months.

Folks...you have the power to find this information out on your own..its all in your hands...read your mortgage loan agreement. All the terms of the re-set are set out and defined to you the day you sign the papers. They can't decide later on to change it, or keep it a secret from you until its time to adjust the rate.

Anyone that has an adjustable rate mortgage should DEFINITELY know how to compute their re-set rate so they can double-check their mortgage company when they send the notice of the increase.

 

[Juliet25]

I feel your pain. We also bought in 2005 and took out a five year ARM on a two bedroom house thinking we were being financially responsible. Buying is better than renting, right? In five years we'll be ready to move, we'll have saved $$$ in interest, and we'd have out next down payment paid out in equity when we sold. Silly us...

But anyway, our ARM rests in July. Here's what to do: dig out your mortgage agreement. It will have information on what your ARM can reset to. In our case, it is tied to the LIBOR, which currently sits at something like 0.89. Our rate is tied to that number + 2.5, as spelled out in the agreement. So, if our rate was reset tomorrow, it would be 3.39% for a year. Interest rates are low, so it's entirely possible that your interest rate will actually be lowered. My DH and I are holding off on a refi for the moment to see if it looks as if LIBOR will stay low.

Also, there should be a cap on the interest. In our case it is 9.95% (that would shoot our monthly payment up, but it's a cap nonetheless).

Good luck! I know how frustrating it feels.