or Make it Worse?
When you break your arm, do you go to your family doctor, or do you go see someone at the ER that is equipped to deal with it? If you are like me, you go to the ER and request a specialist on top of that to make sure your broken arm gets fixed correctly so you don’t have to re-break it just to fix it again. The reason is that your family doctor doesn’t even have the tools necessary to tell you whether or not your arm is even broken.
So if you think you have a broken ARM, why go see a general mortgage practitioner who can’t even tell you straight up whether or not your ARM is really broken? Many Americans have already done exactly that and fixed their ARM even when it wasn’t broken yet. If they had gone to see a mortgage specialist, they could have avoided wasting all that money and making a big mistake.
Just because the media, your neighbor, or even your dog tells you that you need to convert your ARM to a fixed rate or face foreclosure doesn’t mean they’re right. If you dig a little deeper into what is happening to your adjustable rate mortgage, you may just find that it isn’t broke. You may even find it is better than you thought. So, don’t let a general mortgage practitioner prescribe the wrong medicine.
Take a look at the chart below to see what I mean…
Since many ARMs are tied to LIBOR with a standard 2.25% margin, the black line is where your fully indexed rate would if you adjusted today. Interestingly enough, that black line has dropped below the light blue one which represents a 30-year fixed and guess what, it will likely keep going lower. Since the Fed won’t be happy until the Fed Funds Rate is back to about 1%, you can bet LIBOR ARMs are going to be a really good deal in the near future.
Since the media has bashed ARMs to death, you may find it surprising that over the timeframe of the graph, the LIBOR plus margin has been significantly lower than the 30-year rate for a while, yet didn’t exceed the 30-year rate by a large amount, and even then, for only short periods.
The bottom line is that if you had one of these common ARMs (LIBOR based with a normal margin, ie not subprime), you likely just wasted a lot of money. But take heart in knowing you fed the family of a starving mortgage broker. If you had gone to a mortgage specialist, you would have saved the money and likely been enjoying your rate drop.