Please read this carefully, I will do my best to explain the current market and how it can effect you and help you to determine if you should refinance into a fixed rate loan or not.

As your mortgage professional  it is my commitment to you to keep you informed so that you can make the best decisions pertaining to your Mortgage needs.  

Who would have thought that the greatest period in economic history would be followed by one of the most difficult times. I want to remind everyone this is not the Great Depression. We are not is a recession, we may be soon but we are not there yet. Interest rates are still great, employment is wavering, inflation in manageable, oil prices are dropping and the Federal Government is making monumental changes in Fed Policy to help correct the issues in the Financial Markets.  

 If you would like more information on the Market please visit the Mortgage Market Update section on my Website www.DormanTeam.com.   

What Happened?

Financial companies have been under attack. IndyMac and WAMU were the largest banks to falter in history. What brought them down was their exposure to defaulting loans. This sapped investor confidence and drove down the stock price until they filed for bankruptcy. Following IndyMac, we saw Fannie Mae, Freddie Mac, Lehman Brothers and Merrill Lynch succumb and were either forced into conservatorship (government take over), to close their doors, or to sell themselves. AIG, the world's largest insurance company was also impacted, forced to make a deal with the U.S. government to stay in business. 

What You Can Do Now?

Understand your loan program and make educated decisions based off of your circumstances. Many ARM loans are tied to the London Interbank Offered Rate (LIBOR). Once your Fixed Period is up and your Loan starts to adjust the LIBOR is most likely what is used to determine your new rate.  In fact, there are six million loans in the United States that use LIBOR to determine the interest rate and as the name suggests, many banks use this rate to lend money to each other. But, today, banks lack confidence that the money they lend will be paid back. In light of what has happened with Lehman Brothers, IndyMac Bank, WAMU, Countrywide and others, as well as AIG, banks are requiring much higher rates on LIBOR to offset the added risk.  The 6mo LIBOR Rate is close to 4%. To calculate what your rate will adjust to if it were to expire today you need to know the Index and your Margin. These two items will be on your “Note” that you signed at closing, it may be on a separate form titled “ARM Rider”. Your Margin is constant or fixed, so to calculate your new rate you will add your Margin to the current Index and that will equal your new Interest Rate until the next adjustment. If you have a 5/6 ARM your rate is fixed for 5 years and adjustable every 6 Months after the 5 yr period. If you have a 3% Margin and the Index is 4% your new rate for the next 6 months will be 7%, in 6 months time your rate will adjust again. If you want to know what the Index is at today go to http://www.mortgage-x.com/general/mortgage_indexes.aspand look to the left of the page and you will see the chart for the LIBOR Rates. If you on a TBill ARM loot to the Right of the site and you will see the TBill Rates.  

Should you REFI now or Later? I would refinance NOW if:

·        Your ARM is adjusting or expiring in the next 6 months.

·        If your Rate is currently above 6.25%.

·        You can not risk your payment going up $400 (average loan of 250k with a 2% increase = $416.00 per month)

·        You are behind in your mortgage payments now (if so call me immediately) 

I would not refinance if:

• Your ARM is based off of a TBill (unless you have 6 months or less left before your ARM starts adjusting) You plan  on selling your home in the next 2 years.
• Your Rate is in the mid 5’s
• Your ARM is on a rental home