Florida Mortgage Loans- How much higher will your ARM increase?

If your're like many homeowners that took out an adjustable rate mortgage 2-3yrs. ago, that had an initial fixed period of 2-3yrs., if it hasn't already, it will be resetting on the anniversary of when your loan was created. What this means to you is that you're going to be in for an unpleasant surprise.

Now, if you take out a high powered magnifying glass and try to read through your mortgage note, you will see that the lender that did your mortgage, showed different scenarios of how your mortgage would behave after the initial fixed period has expired- too bad no one actually reads that stuff.

For those of you that are not familiar with how your adjustable rate on your mortgage is determined, it's basically a combination of adding the index + the margin. The index that most adjustable rate mortgages are comprised of, are usually either the "LIBOR" index or the "MTA" index. These indices fluctuate on a fairly regular basis, typically monthly. The "Margin" portion of the equation is fixed, it normally doesn't change throughout the life of the loan, and it basically represents the lender's profit margin.

As your looking through your mortgage note, you will find towards the back of the document, a page that says "Adjustable Rate Rider", this is where you will find all of the particulars on how your mortgage will adjust, when it will adjust, and how much it could possibly increase, on each adjustment period, over the life of the mortgage.

As you're reading through this document, you will see that the very first increase that will occur, after the fixed period has elapsed, can be "as high as" 3% above your starting interest rate. So if your initial starting interest rate was at 6.25%, this would mean that it could get as high as 9.25%. This would mean that on a loan amount of $175,000 with an initial rate of 6.25%, your principal and interest mortgage payment would be $1,077. After a 3% increase to the rate, this payment would now increase to $1,439, a $362 increase- and this is just for starters, your rate will now start increasing every six months thereafter.

We haven't even talked about those poor homeowners that have also had an increase in the property taxes and or homeowners insurance- can you say YIKES!!!!

What's a homeowner to do?

For starters, you need to speak to a mortgage professional so that they can explore your options for refinancing- there may not be as many as you think. It's important to keep in mind that your ability to refinance and the mortgage programs available to you, will be greatly influenced by the amount of equity that's currently in your property as well as your credit.

With regards to your equity, there are currently large amounts of sellers out there that are desperately trying to sell their properties, both regular homeowners and investors. Since so many sellers are desperate to sell, they're reducing their sales prices by tens of thousands of dollars. This is greatly hurting the values of comparable home sales that an appraiser must now use, when doing an appraisal on your property.

What does this mean to you?

Let's assume for a moment that you have an adjustable mortgage with a balance of approximately $250,000, and your property had an approximate value of $330,000, as compared to other similar properties within a 1/2 mile of your home. From a mortgage lender's point of view, this loan would have favorable loan-to-value (LTV) of approximately 80%, when you factor in closing cost.

Let's now move forward to present day, where due to desperate sellers, your home is now valued at a depressing $270,000. Granted, your beautiful home has not deteriorated or gotten worse in appearance, its just that this is now what "like" properties are now selling for in your local neighborhood- its not your fault, its just the "current market". This now takes your LTV and raises it from 80% to 97%. At 97% LTV, your financing terms will not be as favorable as they would've been at 80%.

Your interest rate may now be higher because the lender is now lending on a property that has less equity in it, the smaller the amount of equity in the property, the more risk the lender is taking. Lenders offset this risk by simply charging a higher rate of interest. On top of now paying a higher interest rate, you may also have to get mortgage insurance as well as having to escrow your taxes and insurance, some homeowners like to pay this seperately, on their own, not combined with their monthly mortgage payment. These are all things that will more than likely increase your monthly obligations on your home.

We didn't even get into the fact that lenders have also tightened their underwriting guidelines thus making it a bit tougher to qualify for mortgage programs.

The bottom line is that you need to speak with a mortgage professional as soon as possible, and let them do a "free" mortgage review for you, this way you can be proactive and plan your course of action for your next refinance, instead of having those actions dictated to you by the market, simply because you procrastinated.

Please feel free to visit my site, you'll find a lot of great and useful information about financing or refinancing your property. Simply click on the link below or copy and paste it into your browsers address bar:

www.seanwatson-mortgage-specialist.com/