Positive Real Estate Professionals

I came across this article yesterday and thought it made some excellent points regarding how the Libor Index which directly affects Adjustable Rate Mortgages (ARMs) has been behaving. There is a lot of concern now for most people whose loans are scheduled to reset or adjust. The obvious concern is that when an ARM reaches its adjustment period it will automatically skyrocket making the home no longer affordable for the homeowner. In the following article there is some great information about why this may not necessarily be the case any longer.

Via Fred Chamberlin of Eugene Loan Guy

Did you get an adjustable rate mortgage two to three years ago? Are you in a panic because it is time for it to adjust? Maybe panic is not the right thing to be feeling right now. Maybe satisfaction that you did something good is the way to be feeling right now. Eugene and Springfield property values have dropped some, not as bad as other areas, but enough that refinancing is not always possible. But it probably is time to be thinking about what your refinancing options are. Consider these two scenarios:

1. You bought your home almost three years ago on a conventional 3/1 ARM at 6.5% interest. Most generally this ARM has a margin of 2.25% and is based on the 1 year LIBOR (London Interbank Offered Rate). Your loan is scheduled to adjust on April 1, 2009. What is going to happen? To figure this out, you need to look at what the index and the margin are together. The index is currently at 1.89% and when added to the margin that give your a total of 4.14% if it were adjusting in March. Since most lenders round up to the nearest .125% that would make the new rate 4.25% except the maximum adjustment up or down is only 2% so the new rate would be 4.5%. Saving your money every month over what you are paying currently.
2. You bought your home almost two years ago on a sub-prime 2/1/6 ARM at 7.5% interest. This loan has a 5.4% margin and is based on the 6 month LIBOR. I is a six month adjustable and has a maximum 1% up or down adjustment. (Please note: some sub-prime loans have a floor rate of the start rate and will not adjust below the start rate.) In this example, the index is 1.55% plus the 5.40% margin so the rate could go down to 6.95% rounded up to 7% or stay the same.

Just because you have an ARM is not necessarily a reason to panic. Determine what your options are. Fixed rates are excellent for stability, but ARMs are also good when rates go down. What you need to do is determine what your loan is scheduled to do and when it will do it. Make sure you know what makes sense for your situation. If you have difficulty reading the documents and need help determining what will be happening with your loan, give me a call. I am happy to look it over and make suggestions. If a refinance is right for you, I will let you know that. If it isn’t in your best interest, I will tell you that also.

Earlier today I came across this great article by Fred Chamberlin. The program he outlines in his post is excellent. Though there are some restrictions, they do not seem overly cumbersome. I would definitely recommend taking a few minutes to read this post if you are a veteran or a real estate professional who works with a lot of veterans.

Today, so many actual buyers are put off from the housing and mortgage crisis that it is keeping them off the buying market. The problem with this very thought is the fact that the market is saturated with great buys at this moment. On top of that, mortgages rates are a historic lows.

Let’s take a moment to take a look at what is driving this type of market. The first driving factor is the increased number of foreclosures. This is typically being driven due to people buying homes using a 2, 3, or 5 year Adjustable Rate Mortgage (ARM). What compounds this even more is the people that used the Pay Option ARM to get more house than what they can afford. The problem is not actually these types of mortgages. The problem is that people did not have a plan on how to get out of these types of mortgages.

Now, with so many of these mortgages getting to the adjustment period, some of them can go up as much as 1.5 to 2% higher than the original amount. The big issue with that is the home owner has not increased in income enough to compensate for the higher mortgage. In this case, the property owner starts to fall behind and starts to lose the home.

So, that gets us to where we are today. A house is waiting for the right buyer to make it a home. In that time, there is a gold mind out there for investors that are not looking for a quick buck. If you are an investor that looks at the long term, then buying property in today’s market is a smart investment. There will be a lot of people that are looking for rental property because they cannot buy for 3 years due to foreclosure or bankruptcy. Having property that you can rent or even place on a “Rent to Own” basis, will draw people to you.