Refinance Your Mortgage Before The New Higher Rate Kicks In

Refinance Your Mortgage Before The New Higher Rate Kicks In


If you took out an adjustable rate loan within the past three to five years, 2008 could be the year of reckoning for you. That 3/1 or 5/1 mortgage is getting set to adjust (reset) 2008and the new interest rate once the adjustment period kicks in won’t be a pretty one for many homeowners. Some people will see an increase in their monthly mortgage payment that will add hundreds of dollars to their bill, putting added financial pressure on them. Industry experts and government officials are worried that the end result could be a huge spike in loan defaults resulting in a surge of home foreclosures.

What Does A Loan Reset Mean To You?

What does this mean for you? Well, the first thing you should find out is this: when does the adjustment period kick in for your loan? If you have a 3/1 home mortgage, then it will be the 37th month of the loan while 5/1 mortgage holders will find that the 61st month is when their rate will adjust. Check your mortgage documentation to learn when the rate change will take place — you need to plan now to make a change before the new, higher rate kicks in. If you aren’t sure where this information in your loan documentation is located, it should be found under the heading “change date” and be on the second or third page of your contract. You’ll also uncover reset information, specifically how your new rate will be calculated. Typically, the new rate will be tied into the going rate for a one-year treasury note or the six-month LIBOR — London Inter Bank Offered Rate.

Take A Look At Your Mortgage Documentation

After reading your mortgage documentation, you may still be unsure what your new rate will be. You could call your mortgage broker to get current rate information or check a site such as Bankrate to find out what your reset rate will be. Take that index figure and add the margin amount listed in your contract. For example, if the current interest rate on LIBOR six-month is 3.9% and your margin rate is 2.2, then your new mortgage rate would be 6.1%. This is still a good rate, but if your rate was 3.5% previously, it could be quite a hit to your finances. Besides, when you check out the current rates for a 30-year fixed loan, you’ll see that 5.6% financing is possible if you refinance.

Avoiding The Refinance Mess

Refinancing will only be a mess for you if you wait too long to apply for a new mortgage. Homeowners who wait will have to pay higher monthly payments until they are approved for a new loan. By then it could be too late — mortgage companies have tightened up their lending requirements and you may not be eligible to refinance with your deeper debt load.Today, pull out your mortgage paperwork and learn when your reset period kicks in. Then, start assembling the paperwork you will need to apply for a new loan. Copies of your last three federal incomes taxes, W2 forms, and related paperwork will be needed. You will find that you may have to provide more paperwork when refinancing then when you originally took out your loan simply because no- or low-documentation mortgages are pretty much a thing of the past. Today, lenders want to see proof of income and assets, plus they’ll be verifying the information you supplied so make sure that what you state is accurate or risk getting denied.

You Can Win!

Inasmuch as the present mortgage crisis will overcome some homeowners, it doesn’t have to overcome you. Take immediate action and you’ll be in a much better place than the person who delays. 2008 will be pivotal for many consumers — how about you?

For more information about adjustable mortgages, please read — 2008: A Year For Refinancing.


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Categories: Home Financing

About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Matt's Musings", his personal blog. Matt covers campus, consumer, business and financial topics on various websites and blogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".