3 year Arm and rising rates!!!!!!!

I have a $231,000 balance on a 3 year arm (4.75%) for a 4 unit mult-plex amort. over 30yrs($1,480 PITI). I am a year and a half into the 3 year period. Income is $2775 per month. I am starting to plan how to get out of this ARM at a low cost. Any ideas?

It sounds like you are in an ok position right now.

There has been a lot of hype about rising ARM rates that has sparked a lot of fear with consumers.

I would sit and wait to see what happens with rates and what moves the Fed makes over the coming months. Should the US economy start to show signs of slowing down, rates will continue to fall, as they have done over the past 2 weeks solid.

If you really must refinance, a Rate & Term refinance shouldn’t be that hard…

Contrary to popular misconception, short-term fed funds rates have very little to do with long-term mortgage rates. Mortgage rates are tied more directly to Fannie Mae 6% coupon bond, which is sensitive to unemployment, crude supply, PCE, GDP, housing starts, durable goods, etc.

Walt, check your adjustment caps. Are they 3% for the first year or 1% or something else? Depending on your caps, and depending on when you plan to exit the property, you may be better off holding.

Actually, Starke is right to a certain extent- mortgage rates do tend to fall as the economy weakens. Turborocket is also right- mortgage rates are not tied to the federal funds rate.

However, what the Federal Reserve does and more importantly, what they say, as well as the release of key economic data each month such as employment reports, housing data, and inflation data send a signal to bond investors as to the direction the economy is taking.

In a weak economy, bonds are a more attractive investment because they offer a safe, conservative, rate of return. As money is invested into bonds in a weak economy, mortgage rates that are backed by mortgage bonds come down in yield in part because there is more demand. Therefore, mortgage rates fall.

Without question, hold the mortgage you have now.

Your current rate is approx. 1 full point below the national avg for the 1YR ARM; you’d have to opt for an option ARM to improve upon what you have.

A majority of conforming ARMs are structured with a 2/6 configuration; 2% annual cap/6% lifetime cap. Assuming this is the case for you, the worst scenerio for you in year 4 would 6.75%; a little a high based upon today’s market, but not too shabby for an ARM adjustment.

Nobody can give you long term projections of what the market or interest rates will do, but you have 1 1/2 (arguably 2 1/2 years) years to figure out what’s next.

How long do you intend to hold the property?


When I speak of the Fed Funds rate, I’m talking about the substitution effect that happens through-out the lending market as explained by rbaxter.

I believe that it’s the easiest way explain correlation of lending rates that most people are familiar with. If you want to get nitty gritty, you can always pick up the WSJ and follow LIBOR or the 10 yr Treasury.

Does anyone know when the employment report comes out? Thought that it was coming out this week?

The employment numbers come out tomorrow morning. They are estimating 315k new jobs.

The jobless rate declined but the new jobs were way below expectaions…only in the 50K range: