Adjustable Rate Mortgages Adjusting, Should You Refinance
If you currently have an Adjustable Rate Mortgage (ARM) and you are past or coming up on the end of your initial unchanged rate time period then you should be aware that the Libor which many loans are tied to when calculating the interest rate is slightly higher.
First you need to find out how your interest rate will be calculated and which market it will be based off of. Not all are associated with the Libor such a VA Home Loan so identifying how your interest rate is calculated will be important. Some markets are more volatile than others.
This is the first time in over a year where the interest rate may possibly increase. If you are just coming out of your fixed rate period it’s possible that your interest rate will actually drop depending on when you got your original loan. The interest rates have come down further and further and it’s very possible that you got a loan with a higher rate and when it adjusts it will actually be lower.
LIBOR stands for the London Interbank Offered Rate. It’s a rate at which banks lend to each other overnight.
Expressed as a math formula, the adjusting ARM formula reads :
(New Mortgage Rate) = (2.250 percent) + (Current 1-Year LIBOR)
If you have an ARM and you are worried about the uncertainty it is always an option to refinance to a Fixed Rate which is also at all-time lows currently. Depending on how long you will be in your home it may be advantageous to simply stay on your ARM and go with the flow. If you have any questions simply contact a loan officer for a free consultation by calling toll free (866) 825-6261.