My 5-Year ARM New Rate

A while back, I told you about my 5-year ARM, which is set to adjust this summer. I explained how I would request a "freeze", which was all the rage with the mainstream media a few months ago. And how it all ended.

On Friday, we received a letter from PHH/AMX with "information about pertinent changes to your monthly mortgage payment and interest rate." I didn't expect our payment to rise significantly, but I was still nervous about discovering how much the new one would be.

I skimmed the current rate information and formula for calculating my new rate (which I already knew) and skipped down to the new principal and interest payment. What do you know?! Our new payment is a penny less than our old one!! This will be locked in for one year (adjusting annually).

Our old rate was 4.75%. The index used for the new rate is the one-year T-bill weekly average, which is 1.94%. The margin used is 2.75%. I need to add the 1.94 and the 2.75 to get my new interest rate. This equals 4.69%. Although it's not explained in the letter, my loan docs specify that the result of adding the two will be rounded to the nearest one-eighth of one percentage point. That's why the new rate is the same as the old. Of course, if the index had been just a tad lower, my new rate would have been rounded to 4.5%--lower than my old rate.

Maybe, if other mortgages start to adjust in the same way (although many of them are based on different indices), this will do more for leveling off the real estate market than anything else. The bottom line is that the worst hit areas need to get rid of their inventory. One way to do that is to have lots of people buy foreclosures, but the prices may need to drop significantly more for this to happen. Another way is to stop the flow of properties into the market. If other mortgage adjustments don't increase as much as they were a year ago, then the rate of foreclosures will decline tremendously. Only time will tell.

As for us, we couldn't be happier that 1) our payment is less (even if it's just $.01) than last year, and 2) we didn't have to refinance for it to happen. I've been doing a little jig all weekend!