I want to clear up one of the biggest differences between conventional and sub prime adjustable rate mortgages.  Of course the interest rates differ greatly; but it’s how the mortgage loan adjusts that truly makes a huge difference.  Not only for Florida homeowners but for any homeowner that obtained a sub prime type adjustable rate mortgage.

Home buyers whom, for whatever reason, chose a sub prime adjustable rate mortgage (ARM), should have been told, upfront, that the Margins with these mortgage loans are extremely higher than conventional ARM programs available from Fannie Mae, FNMA, and Freddie Mac, FHLMC.

The Margins associated with many adjustable rate mortgage loans, are fixed.  To determine the new interest rate, these fixed Margins are added to whatever variable Index the mortgage loan is utilizing; such as the LIBOR, T-Bill, MTA etc… Conventional FNMA and FHLMC adjustable rate mortgages usually have fixed margins of 2.25% or 2.75%.  However, sub prime margins run in the 5% to 6% range.  So when the rate is adjusted, the home owner pays dearly. 

 To learn how much your interest rate will adjust soon; review your adjustable rate mortgage rider that you received and signed from your loan closing when you refinanced or purchased your home.  Add the current Index percentage with the fixed Margin.  Please feel free to call your mortgage professional for assistance.

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