Libor Rate May Push Me to Chapter 13
Hi All,
OK I am sure someone can help me and explain to me in layman terms how to understand my 36 month ARM that will readjust on 5/1/09. I read through my loan documents to review the caps, ceiling rates, etc.
Type of Loan:
36 ARM, Fixed at 7.125%
First adjustment - 5/1/09
Index: 6-Month LIBOR
MARGIN: 6.75
6-Month Rate Cap: 1.5
Initial rate change: Index (6-month LIBOR) + 1.5 = 7.125 + 1.5 = 8.525% on 5/1/09
Maxium Ceiling: 7 = No higher than initial rate (7.15% +7) = "I know - ouch!" 14.15%
Anyway, now that you have my basics out of the way, I need to understand how the 6- Month Libor rates will affect me at least within the next 12 months. Since the FED lowered the rates to 0-.25% (cool!) I have been tracking the 6-Month Libor rates and it has come down dramatically since the 10/2008 financial bailout came through in November. And, yes, I know, no one is a pyschic, but based on current financial conditions, the FED is projecting keeping rates low for awhile. I looked at the history of the Libor and from 2002- through about the summer of 2004, the 6-month libor fluctuated between a low of 1.16 to the low 2's.
This is what I know (and after speaking with a loan servicer rep. at Countrywide):
1. Come 5/1/09 - my rate will adjust to 8.625% (again, that is 7.12 + 1.5 - my first adjustment cap.)
2. Come 11/1/09 - 6 months later - it will readjust again to the rules noted above "no more or no less" than 1.5 + the 6-month Libor. And so on and so on - readjust 5/1/10, 11/1/10, etc.
ALRIGHTY, HERE ARE MY QUESTIONS THAT I COULD NEVER GET A FULL 100% FROM ANYONE.
QUESTIONS:
1. I pretty much understand my rate WILL go up 1.5 over the current 7.125% on 5/1/09 - that is clear to me.
Today's 6 Month Libor is at a low of 1.864.
Question: Is it possible that my first rate change could be lower if the Libor continued to go lower?
Let's say - just for arguments sake, the Libor hits 1.25 on 4/1/09. Would my loan company calculate 6.75 (My margin) + 1.25 (INDEX) = 8.00% ****Wouldn't my rate change from 7.125 to 8.00 instead of 8.625% on 5/1/09??? OR is the bank saying NO, your first adjustment stands at 1.5 so we are still changing your rate to the higher - 8.625% no matter what LIBOR says at that time??
2. Question regarding the 11/1/09 rate change:
OK, now since my 6-month adjustment cap is NO MORE OR NO LESS than 1.5, does that mean if the Libor is then 2.00, what would my rate be? 6.75 + 2.00 = 8.75%???
OR will the bank add ANOTHER 1.5 to the 5/1/09 rate of 8.625% - which would = 10.15%???!
But since the bank says I cannot have my rates GO HIGHER OR LOWER than 1.5 - I am confused about this because if LIBOR stays low for let's say the next 18 months, will the bank keep it within the 1.5 or will they keep jacking up my rate until it hits the ceiling? Shocked I just don't understand the NO MORE OR NO LESS than 1.5 adjustment cap thing.
Thank you and Happy Holidays!
OK I am sure someone can help me and explain to me in layman terms how to understand my 36 month ARM that will readjust on 5/1/09. I read through my loan documents to review the caps, ceiling rates, etc.
Type of Loan:
36 ARM, Fixed at 7.125%
First adjustment - 5/1/09
Index: 6-Month LIBOR
MARGIN: 6.75
6-Month Rate Cap: 1.5
Initial rate change: Index (6-month LIBOR) + 1.5 = 7.125 + 1.5 = 8.525% on 5/1/09
Maxium Ceiling: 7 = No higher than initial rate (7.15% +7) = "I know - ouch!" 14.15%
Anyway, now that you have my basics out of the way, I need to understand how the 6- Month Libor rates will affect me at least within the next 12 months. Since the FED lowered the rates to 0-.25% (cool!) I have been tracking the 6-Month Libor rates and it has come down dramatically since the 10/2008 financial bailout came through in November. And, yes, I know, no one is a pyschic, but based on current financial conditions, the FED is projecting keeping rates low for awhile. I looked at the history of the Libor and from 2002- through about the summer of 2004, the 6-month libor fluctuated between a low of 1.16 to the low 2's.
This is what I know (and after speaking with a loan servicer rep. at Countrywide):
1. Come 5/1/09 - my rate will adjust to 8.625% (again, that is 7.12 + 1.5 - my first adjustment cap.)
2. Come 11/1/09 - 6 months later - it will readjust again to the rules noted above "no more or no less" than 1.5 + the 6-month Libor. And so on and so on - readjust 5/1/10, 11/1/10, etc.
ALRIGHTY, HERE ARE MY QUESTIONS THAT I COULD NEVER GET A FULL 100% FROM ANYONE.
QUESTIONS:
1. I pretty much understand my rate WILL go up 1.5 over the current 7.125% on 5/1/09 - that is clear to me.
Today's 6 Month Libor is at a low of 1.864.
Question: Is it possible that my first rate change could be lower if the Libor continued to go lower?
Let's say - just for arguments sake, the Libor hits 1.25 on 4/1/09. Would my loan company calculate 6.75 (My margin) + 1.25 (INDEX) = 8.00% ****Wouldn't my rate change from 7.125 to 8.00 instead of 8.625% on 5/1/09??? OR is the bank saying NO, your first adjustment stands at 1.5 so we are still changing your rate to the higher - 8.625% no matter what LIBOR says at that time??
2. Question regarding the 11/1/09 rate change:
OK, now since my 6-month adjustment cap is NO MORE OR NO LESS than 1.5, does that mean if the Libor is then 2.00, what would my rate be? 6.75 + 2.00 = 8.75%???
OR will the bank add ANOTHER 1.5 to the 5/1/09 rate of 8.625% - which would = 10.15%???!
But since the bank says I cannot have my rates GO HIGHER OR LOWER than 1.5 - I am confused about this because if LIBOR stays low for let's say the next 18 months, will the bank keep it within the 1.5 or will they keep jacking up my rate until it hits the ceiling? Shocked I just don't understand the NO MORE OR NO LESS than 1.5 adjustment cap thing.
Thank you and Happy Holidays!
