Found ARM Note

[Venus]

In an effort to prepare to call Chase to see if they can do a loan mod for my already adjusted ARM, I found my ARM note this evening. It says:

 

"Multistate Adjustable Rate Note - Libor 6-month index as published in the Wall Street Journal - Fannie Mae Uniform Instrument"

 

Does this mean it is a Fannie Mae mortgage?

 

What does Libor 6-month tell me about my mortgage?

 

It also says that the first change date was 3/08 and that the first rate change would not be greater than 13.9 and no less than 10.9%. Thereafter, the rate change will never be increased or decreased on any signle change date by more than 1% from the rate I was paying for the preceding 6 months. It says the interest will never be greater than 17.9% (oh my!) or less than 10.9%.

 

Mortgage amount - $153K.

 

I have continued to make the payment I made BEFORE it adjusted so I am wondering just how much additional I owe since it adjusted.

[jw1980]

Does this mean it is a Fannie Mae mortgage?

Not necessarily. Fannie Mae and Freddie Mac have invested a great deal of effort into creating certain legal documents.

 

Many alternative/subprime mortgages were closed using the uniform notes, riders, and other documents.

 

What does Libor 6-month tell me about my mortgage?

The six month LIBOR is a specific "rate of money" just as is Prime or the Fed rate.

 

Mortgagees will typically match LIBOR terms to adjustment terms, but not always. (1 month LIBOR for monthly ARM, 1 year LIBOR for yearly ARM, etc)

 

It also says that the first change date was 3/08 and that the first rate change would not be greater than 13.9 and no less than 10.9%. Thereafter, the rate change will never be increased or decreased on any signle change date by more than 1% from the rate I was paying for the preceding 6 months. It says the interest will never be greater than 17.9% (oh my!) or less than 10.9%.

 

Mortgage amount - $153K.

 

I have continued to make the payment I made BEFORE it adjusted so I am wondering just how much additional I owe since it adjusted.

To answer this question, we must clarify the use of the word "owe."

 

You will owe more on a monthly basis on this loan if the rate increases, and less if it decreases.

 

This is different from how your principal balance decreases, or amortizes (unless this is an interest only loan).

 

Assuming you have an amortizing loan, each time the rate changes, the servicer (Chase) will recalculate the payment required to pay the loan off in the remaining term at the applicable rate.

 

If you have a loan with a term of 30 years, you will make 360 payments on it. Your monthly payment will be calculated as whatever is required to keep you on that schedule at the prevailing rate.

 

So, yes, what you owe in any given month to cover the interest may change, but what you owe on the loan as the months pass will decrease according to the planned schedule. The fluctuation every six months on your loan merely readjusts the rate at which interest is assessed on the remaining balance.

 

This is the important part - you don't owe any more on the loan (as in, your balance does not go up) because your rate went up. The only thing which may have increased is the part of your monthly payment which covers the accrued interest.

 

There are only two scenarios in which your outstanding balance will go up:

 

1. You have an Option ARM also known as a Pay Option or Pick-A-Pay.

2. You don't pay your bill on time, and fees and interest accrue on a past due balance.

 

Here is the current six month LIBOR rate: http://www.erate.com/six_month_libor_index...onths-libor.htm

 

Your servicer will calculate your new rate by looking at the index (LIBOR) on the change date, and adding the margin specified in your note to it. (subject to rounding as specified in the note)

 

LIBOR is one of the rates that banks pay for borrowed money. The margin added covers the risks of loss, the costs of servicing, and profit. What is your margin?