I am reviewing a new client’s loan docs for an adjustable rate mortgage. It will reset in 3 years by 2.25% based on the index. However, if the index is lower than the rate the client had been paying, does the rate adjust down or stay at the previous level? The client does not appear to qualify for a loan mod (i’m having them fill out the pre-qualifying worksheet anyway) and I am trying to work with the future adjustments in mind.
Thank you for the quick response Bill. My wife and I are trying to get back out to see you all since we had so much fun with you and Gail in San Antonio on our 10th wedding anniversary.
I can’t find any text that says this adjustment won’t adjust downward but have seen previous adjustable rate addendums that state it can never go lower than the introductory rate. One thing just came to mind, if adjustables can go lower and indexes are near/are at historic lows, why is anyone with an adjustable mortgage having higher payments, option ARMs not withstanding?
BolieuNJ, all ARMs have a floor. The floor is usually–but not always–the start rate. Therefore, most–but certainly not all–recently originated ARMs can’t take advantage of rate declines, while they’re subject to rate increases.
Check your “Adjustable Rate Rider;” that’s where the terms governing adjustments to the Note can be found.
Also, make sure when you go to Denny’s that when you order, “French” Toast or “French” Fries, that they are actually “French” and not just a loaf of Wonder Bread or actually an “Idaho” Potato they slice up beyond recognition and called it “french”. You need to always ask first and know what you’re ordering or buying first before you waste your money and the cooks time.
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