Quote:
Originally Posted by asshanson
A lot of ARM loans will have a 2% lifetime max, and an annual 1% cap or so. Also, a lot of 30yr fixed are 4.5% now, rates jumped last couple weeks. I am considering a 10/1 ARM if fixed rates dont come down in a month or so.
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Why, because 4.5% is some sort of outrageous percentage? 5 years ago you'd be lucky to even get 6% on a 30 year loan. Take a look at this graph, and see where we're at. You can still get rates in the 4% range, do you understand how rare that is historically speaking? Yeah rates have gone up a tish, oh well you didn't get in at rock bottom, but you're still getting in damn close to it.
As for your question Paul, that's exactly why I asked if there's a max. Usually they will have a max (say 10%) that once you reach that they can't go any higher. Also there is usually some sort of margin percent as well. So say you have a 5/1 ARM that you locked in at 3%. The max can never exceed a total of 10%, and the margin is 1.5%. Your 5 year mark comes up, time to adjust your loan. Say interest rates at that time are now 5%. The 1.5% margin means they can adjust your loan as high as they want, as long as it's with in 1.5% of current interest rates. So this means they can adjust it to 6.5% (5 + 1.5). However since you have 2% cap on increases, they can only increase you to 5%, and they will more than likely.
Now the next year interest rates have stayed exactly the same at 5%. Well guess what, not for you because they can now up your rate to 6.5% because you're still within that 1.5% margin, and they didn't exceed the 2% change cap. Then say the next year rates to up to 6%, they can bump you up to 7.5%.
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