Did you get an adjustable rate mortgage two to three years ago? Are you in a panic because it is time for it to adjust? Maybe panic is not the right thing to be feeling right now. Maybe satisfaction that you did something good is the way to be feeling right now. Eugene and Springfield property values have dropped some, not as bad as other areas, but enough that refinancing is not always possible. But it probably is time to be thinking about what your refinancing options are. Consider these two scenarios:

1. You bought your home almost three years ago on a conventional 3/1 ARM at 6.5% interest. Most generally this ARM has a margin of 2.25% and is based on the 1 year LIBOR (London Interbank Offered Rate). Your loan is scheduled to adjust on April 1, 2009. What is going to happen? To figure this out, you need to look at what the index and the margin are together. The index is currently at 1.89% and when added to the margin that give your a total of 4.14% if it were adjusting in March. Since most lenders round up to the nearest .125% that would make the new rate 4.25% except the maximum adjustment up or down is only 2% so the new rate would be 4.5%. Saving your money every month over what you are paying currently.
2. You bought your home almost two years ago on a sub-prime 2/1/6 ARM at 7.5% interest. This loan has a 5.4% margin and is based on the 6 month LIBOR. It is a six month adjustable and has a maximum 1% up or down adjustment. (Please note: some sub-prime loans have a floor rate of the start rate and will not adjust below the start rate.) In this example, the index is 1.55% plus the 5.40% margin so the rate could go down to 6.95% rounded up to 7% or stay the same.

Just because you have an ARM is not necessiarly a reason to panic. Determine what your options are. Fixed rates are excellent for stability, but ARMs are also good when rates go down. What you need to do is determine what your loan is scheduled to do and when it will do it. Make sure you know what makes sense for your situation. If you have difficulty reading the documents and need help determining what will be happening with your loan, give me a call. I am happy to look it over and make suggestions. If a refinance is right for you, I will let you know that. If it isn’t in your best interest, I will tell you that also.

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