How can ARMs adjust upwards if the lending rates are going upwards too? I had an ARM on my farm years ago, and it was tied to the generalized intereste rate (geez, can't think of the word for it now), so that it would only go up if that rate went up. Why are all the ARMs going up now?

katie

Hi, Sassy Kat, this article may help explain.

click here

Thanks for the article link. That doesn't really explain it for me, tho - it talks about ARMs not resetting high, but I'm wondering whey they would go up at all. Did people agree to automatically higher rates at resets when they took out the loans? I mean, interest rates are still almost as low as they were a couple of years ago, so why are the ARM's going up so high?

katie

mortages're simply contracts & the bond is its guarantee,,,amazing how many people sign w/o KNOWING what they're signing,,, have no sympathy for those losing their homes thru stupidity,,, both our places're free & clear,,, even in today's mkt, i can imagine nothing more ill-advised than mortgaging them for investment capital even tho it is a sound biz practice,,, our homes are not 'business', tho.

Sassycat,
T Bills move for different reasons than interest rates. They are an investment vehicle. Most (not all) ARMs are tied to the Treasury Bill activity.
That having been said, my last ARM went down anyway!
My bank sent me papers to 're-cast' the loan at a lower rate, rather then lose me.

Just thought I'd add...
I'm now in a 7 yr ARM at 4.1% and consistently paying extra against the principal.

When it does adjust in 4 more years...

even IF it went up the max (2%) based on my new principal balance...
I'll pay - 12% less than I do right now!
Thats a great stimulus to keep putting that extra down!

and... in 4 years when the payment goes DOWN, I'll continue to make my same payment (only now the 'extra' will be higher) and if all goes well I should pay off a 30yr loan in 15!

p.s. - that "extra" I pay?
It's the difference bewteen the "conventional" rate I was quoted vs the "acual" rate of my ARM.

The 'product' has never been the problem...
it's ALWAYS been about mis-use.

my ARM is tied to the t-bill...and this was the year that it could adjust...if the T-bill was higher than 4.5% - which it isn't...so it will stay the same. In about 4 yrs(i think, can't remember right now)...it will stay that rate for the remainder of the 30 yrs...If it were to go up - the max it would increase would be 1% - and that was still less than the 7% rate i had 3 yrs ago when i re-fied...smartest deal i could have ever made!!