by Jim Carson
Question by Jessica: If I’m on an adjustable rate mortgage, will my rate go down, if the prime rate go down, without me refinancing
I have an adjustable mortgage with a 2 yr fixed rate, but in 2 months my mortgage payment will increase to $ 400 dollars. I’m just wondering why it’s going up if the prime rates went down, shouldn’t my mortgage payment go down instead? Please help I’m confused.
Answer by Tim D
ARM’s are set based on a margin over a certain index. You need to look at your mortgage papers and find out what index it is based on and what your margin over that index it is set to.
Example Your paperwork will say after 24 months your rate will be MTA + 3.5%
So if the MTA is 4.00% then your new interest rate will be 7.5%.
Some of these are 12 month averages such as the MTA which don’t usually move up or down very fast even if the economy swings. This is a good thing if rates are going up but a bad thing if rates are going down.
Hope this helps. It would seem that your rate should be lower than 2 years ago but they may have locked you in at a good teaser rate at the time.
It might be time to refi and get a fixed long term loan. Rates are good right now.
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