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.
Jan. 12, 2007.