Recently, I have been calling my clients that are in adjustable rate mortgages(ARM)s about refinancing their mortgage loan before the rate adjusts on them. Most ARM's have a certain amount of time that the interest rate is fixed. Most are fixed for 2,3,5 or 7 years. After this period of time is up, the loan then converts to an adjustable rate that is tied to both an index and a margin. The index is rating system based on short term borrowing. The 2 most common indexes is the 1 year Libor and 1 year MTA. The margin is the profit point that the lender charges you for borrowing the money over the index. So you add the margin + the index and this equates out to your new rate. Most banks notes will round the rate to the nearest 1/8th or .125 percent. Since the Libor and MTA indices have moved in a upward direction from 3 to 5 years ago, most people who have an ARM are needing to refinance to get out of the steep increase in the interest rate and payment.
Now in the past, it was easy to requalify for new terms. However with all the lending guidelines changing, banks are no longer borrowing new loans to just anyone. Their credit standards have become more strict, the amount they will borrow based on home values have decreased, and the employment documentation and asset documentation has become very strict.
What does this mean if your adjustable rate mortgage is going to adjust in the next 12 months?
It means you will need to get the proper advise from a mortgage lender who can advice and guide you on all the new lending changes. Your mortgage advisor can sit down with you and explain how this affects your unique situation. It might require credit repair and many other things. I feel it's best to talk with your mortgage lender at least 6 months before your adjustment and make sure he reviews your situation ahead of time. Sometimes credit repair and other requirements take time to fix. If you wait until your loan adjusts, and your credit repair takes 6 months, then you may not be able to get that new loan for 6 months and will be paying a higher payment during this period of time. Some clients of mine would not be able to afford this steep increase, so we are working together now, to take care of certain things before the adjustment period begins.
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I provide full service mortgage planning and guidance for the Tempe/Mesa AZ community. I specialize in helping first-time homebuyers obtain homeownership through FHA, VA and conventional mortgages.
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Excellent advice. Yet another reason why we should maintain contact with past clients - added value
Great advice. I know I have been using the "What If" Simulator a lot more now. However, if my client does not have the cash to pay down on anything than they will have a problem getting a rapid re-score.
This is great advice. I know so many buyers now who just don't understand why they aren't able to do the same things they could do a year ago with the same credit. It just goes to show that it takes a change in the behaviors that got them in trouble to truly make an impact on their credit. I've had to give this advice many times myself over the last three months, so I greatly appreciate the post.
Matthew R- Added Value is so important today
Matthew B- I have been using that as well, its really helps to know how to manipulate the credit data.
Andrew- you said it perfect "advice", we are moving to a flight of quality in our industry and those who advice and educate will stand apart.
PS, how was your Disney experience, I know you went on vacation recently? Let me know.
Good advice Gary. It seems I've been hearing more and more about credit repair, in fact we've had two companies show up at our office resently, offering credit repair services. They both offered similar services for about the same cost, which was around five to six hundred dollars per person. Now that didn't seem out of line except I was having a hard time selling my borrowers on the cost even though payment plans were offered. Last week I was searching the internet and found a company that has been in business since 1991 that does credit restoration and charges about half the cost. This should be a little easier sell to cash conscious borrowers as they hear more and more about the buzz on credit repair services.
Thomas- Finding a good credit repair company to work with can develop into a great relationship. I have been working with the same company now for over 2 years. They charge between $350-$550.00. This company has help me out so many of my clients.