Figuring Payment on Adjustable Rate Mortgage (ARM)
REM #F732
By Ilyce R. Glink
Summary: A reader has an adjustable rate mortgage (ARM) that expires soon. Ilyce helps him figure out how his payments will change and suggests he shop around for a better rate.
Q: My 2-year adjustable rate mortgage (ARM) expires in January. My current
interest rate is 6.9 percent.
Based on today’s rates, how much will my payment increase?
A: What kind of loan do you have? Do you have an interest-only loan? Do you
have a pay-option ARM? Does your loan convert to a 1-year ARM or will you get
another 2 years before it adjusts for another 2-year period, or does your loan
convert to a 28-year fixed rate mortgage? What index is your loan tied to?
Let's assume you have a straight-forward ARM where you pay principal and interest.
If your ARM has a 1 or 2 percent interest rate cap, then it might rise to 7.9
or 8.9 percent. But some interest rates have actually dropped a bit, so it's
possible that your loan's interest rate wouldn't go up at all and might in fact
drop some.
You might want to call your lender and ask. Then, I'd start shopping around.
At press time, Bankrate.com was featuring
5-year ARMs for 5.54 percent, 15-year loans for 5.46 percent, and 30-year loans
for 5.69 percent. The best rates require a top credit history and score. Some
of these rates include the payment of discount points (one point equals one
percent of the loan amount), so make sure you call around to get the best rate
and the best deal for yourself.
NOTE: This column is distributed by Real Estate Matters Syndicate, PO Box 366, Glencoe, Illinois, 60022. This column may not be resold, reprinted, resyndicated or redistributed without written permission from the publisher.
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