Do you have an adjustable rate loan whose rate is about to substantially increase?

You are not alone.  Tens of thousands of homeowners, like you, are receiving rate increase notices every month.   

While this loan provided a solution for you initially, it is clear that now is the time for you to take action and explore your fixed rate options.   

You have found the solution.  We specialize in converting dangerous adjustable rate mortgages into secure fixed rate loans.  In fact, we have helped thousands of individuals, like you; find the peace of mind with a fixed rate loan.

  CONVERT TODAY!

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Now that your “teaser” start rate is due to expire, your loan will be subject to a rate adjustment every six months for the life of the loan.  Your monthly payments could increase at such a rapid pace that you might just not be able to keep up.  Keep in mind, the type of loan you have is designed to have a substantial rate increase even if rates stay the same or even decrease. You can stop this process by converting to a fixed rate today.  To help you completely understand the nature and dangers of your type of loan, we have compiled the following answers to the most FAQ’s. 

• Why did we receive a letter?
• What is a Hybrid Adjustable Rate Mortgage?
• Why do I have this type of loan?
• I was told I had a fixed rate loan!
• How is my new rate calculated?
• What is the Margin?
• What is the Index?
• What is the L.I.B.O.R index?
• What is the fully indexed rate of my loan?
• How much can my rate increase?

You received a letter from us because our records indicate that you are about to realize a substantial rate increase on your home loan.  The type of adjustable rate mortgage you have is commonly referred to as a Non-Conforming or Hybrid ARM.  These types of loans have an initial “teaser” start rate but are designed to have a rate increase even if rates stay the same or even decrease. 

What is a Hybrid adjustable rate mortgage?   

Hybrid ARM’s are a non-traditional mortgage product that are often advertised as either 2/28 or a 3/27.  The loan provides an initial fixed rate term of either two or three years.  Once the initial fixed rate period expires, the rate will be subject to adjustment every six months for the life of the loan. 

Why do I have this type of loan? 

There are several reasons why this type of loan is popular.  Many reasons are valid most, however, are not.  The number one reason, we have found, is that your mortgage company did not have your best interests in mind.  Forget about credit history, income, assets or anything else.  The fact is that you could have had a fixed rate from the start. 

I was told I had a fixed rate loan! 

You were probably told you have fixed rate by your mortgage person and maybe even the closing attorney.  While this not completely untrue it is certainly not the whole picture.  Hybrid ARMS are fixed for only the first two or three years.  After this initial period, your loan will convert to a six month adjustable rate loan.   

How is my new rate calculated? 

Once the fixed rate period expires your lender will calculate your new interest rate by adding your margin to the current index and applying the interest rate caps as contained in your agreement.  This calculation will continue every adjustment period throughout the life of the loan.  

What is the Margin? 

To determine the interest rate on an ARM, lenders add a few percentage points to the index rate, called the margin.  Just like your interest rate, the margin is determined at the time of closing and remains constant throughout the life of the loan.  The margin is typically based on your credit record.  The better your credit, the lower the margin and the lower the interest rate you will have to pay on your mortgage. 

What is the Index? 

The interest rate on an ARM is made up of two parts:  the Index and the Margin.  The Index is a measure of interest rates generally, and the margin is an extra amount that the lender adds.  Your payment will be affected by any caps, or limits, on how high your rate can go.  If the index rate moves up, so does your interest rate and you will probably have to make higher monthly payments.   

Hybrid ARM’s are based on the sixth month London Interbank Offered Rate (LIBOR) as published in the Wall Street Journal.  The following chart shows the history of the 6 Month LIBOR rate for the last ten years.

What is the fully indexed rate of my loan? 

The fully indexed rate is the real rate on your loan.  This is simply calculated by adding the margin to the index.  If the initial rate on the loan is less than the fully indexed rate, it is called a discounted rate (teaser rate).   For example, if your loan originally closed with a start rate of 6.00%, a margin of 6.00%, and an index of 5.32%, the fully indexed rate would be:                         

In this example, you would have clearly benefited from having an initial start rate of 6.00% for the first two or three years of the loan.  When this period is over, however, your rate and payments will quickly adjust to reflect the fully indexed rate (real rate).  Any savings realized in the first two or three years will be quickly erased.      

How much can my rate increase? 

The limits of your interest rate increases are contained in your “Adjustable Rate Rider” that you signed at the time of closing.  Hybrid ARM’s typically have interest rate caps of 3/1/6.   

The first number represents the maximum percentage points your rate may increase on the first adjustment period.  Using the earlier example, your rate, on the initial adjustment period would increase to:

The second number represents the maximum percentage points your rate may increase on all other adjustment periods.  Keep in mind that Hybrid ARM’s have an adjustment period of every six months.  Using our example, your rate will increase another 1% six months after your initial increase.  This 1% increase will continue until you reach your lifetime adjustment cap or until you reach your fully indexed rate. 

The last number represents the lifetime adjustment cap.  This is the maximum percentage points your rate may increase over the life of the loan. Again, Hybrid ARM’s typically have adjustment caps of 3/1/6.  This means, using our example, the maximum rate you can ever expect is 12.00%.