LIBOR ARM: I think I broke mine! : )

[Mary_From_Georgia]

Has anyone ever gotten a 10/1 LIBOR ARM loan? This option is tempting me as the home I want to get I think stands a good chance to appreciate in 5 years and we're talking ~$300/month less going this route vs a fixed.

My main questions are:

1) What is the rate of equity build using this route vs fixed?
2) For the 10-year period, is the rate locked?
3) After the 10-year, what is the maximum the new rate can be adjusted?
4) Are you allowed to refinance into a different scheme if other products are available after year 10?

Thoughts, watch outs, learnings?

Also, in Gwinnett Co, GA can you choose to pay property taxes in lump sum or do you have to pay per month?

Thanks,
MFG

[bubba]

Read the very fine print of the documentation the lender provides you in advance of agreeing to this loan. I don't know if there are any "standards" regarding a 10/1 LIBOR Arm, but I will tell you that when we have used adjustable mortgages in the past, we calculated what the payment would be on the full note amount at the very highest interest rate and if we couldn't afford to make that payment at the time the loan papers were signed, then we went another route. I would also say (and this is just mho) that I would never buy anything with the thought that appreciation would assist me with a higher payment if the rate resets. If you can do this at a $300 per month savings, what did you plan to do with the $300? If you plow that into the loan, would it make a reset easier to deal with?

[SecondCor521]

MFG,

Read my answer to a similar question you posted on your other thread.

As for your other questions here about the loan, we here on the board have no way to tell. You should be asking these questions of the lender or mortgage broker who is offering you this product. That being said, the terminology 10/1 would generally indicate that the rate would be fixed for the first 10 years and then reset annually after that. Generally speaking, you can refinance anytime you want; however your existing mortgage may have prepayment penalties that could apply.

As far as your property tax question, you should ask the Gwinnett County assessor's office. In my county, I have the choice of paying my property taxes six months at a time or one year at a time; I've no idea if this is typical. Also, note that I do not have a mortgage escrow account; if I did have one then 1/12th of my property taxes and property insurance would be added to my monthly payment; the mortgage company would then save up those extra amounts and pay my property taxes and insurance when required.

2Cor521

[Mary_From_Georgia]

Originally Posted by SecondCor521

MFG,

Read my answer to a similar question you posted on your other thread.

As for your other questions here about the loan, we here on the board have no way to tell. You should be asking these questions of the lender or mortgage broker who is offering you this product. That being said, the terminology 10/1 would generally indicate that the rate would be fixed for the first 10 years and then reset annually after that. Generally speaking, you can refinance anytime you want; however your existing mortgage may have prepayment penalties that could apply.

As far as your property tax question, you should ask the Gwinnett County assessor's office. In my county, I have the choice of paying my property taxes six months at a time or one year at a time; I've no idea if this is typical. Also, note that I do not have a mortgage escrow account; if I did have one then 1/12th of my property taxes and property insurance would be added to my monthly payment; the mortgage company would then save up those extra amounts and pay my property taxes and insurance when required.

2Cor521

Thank you. Looks like fixed is the way to go.

[Sandy]

I used an 8/1 mortgage for 5 years. rates dropped and I refinanced to a lower fixed rate. No prepayment penalties - but I asked before agreeing to the initial loan. 10 years is a lot of wiggle room to give you an opportunity to obtain a lower rate and many people move before that time.