my variable rate mortgage is due to be changed on oct. 15th . it's at 7.5% now . it will change for the next five years. it will be 2 points above the index . the index being the "weekly average yield on us treasury securities adjusted to a constant maturity of one year". with whats happening to stocks and gold right now what effect does this have on my mortgage rate? if y2k problems are bad this will effect the amount of money i need to have in reserve to pay the higher rate. it can rise to 9.5%. i have no illusions that my work is ressesion [or depression] proof. there would be no income untill i found some other work. other preps are mostly done .thankyou for any help . vicki

-- vicki (vmozeleski@aol.com), October 04, 1999

Answers

Vicki,

I've been in the mortgage business for 20 years and am not aware of any ARM program that adjusts once every 5 years. There are some programs that start out "fixed" for the first 5 years and then adjust to an annual rate change tied to the t-bill index which your's may be. When your new rate is changed on Oct 15th, whatever the new rate will be, it should stay fixed for a given period of time. The minimum being 1 year before the next change date. It is quite possible that the effects of y2k will cause your rate to adjust higher each year until you reach the maxed-out rate which is typically 6 per cent above whatever rate you started out at. If at all possible, I would recommend that you try and convert your mortgage to a fixed-rate. You may have a conversion feature built into the mortgage now and would only have to pay a nominal fee to convert if you have this available. Check with your lender. If not, you may want to consider refinancing to a fixed-rate. It will cost you to do this but it may be the best thing for you in the long run.

My e-mail works if you have any further questions or if I can help in any way.

Best Wishes,

Don

-- don (mrmtgman@aol.com), October 04, 1999.

I got a 6.5% fixed rate 15 year mortgage this summer. I thought everybody else did, too! Who's your financial advisor?

-- Steve Pace (space@nwaisp.com), October 04, 1999.

Don, thank you for your offer of help. I have the same situation as Vicki....but if we are supposed to have a recession/depression, due to the problems with oil and engergy, foreign imports, etc., would not the t-bills index go down instead of UP? As I recall, my mortgage agreement had a "no lower than as well as a no higher than" clause. Sorry if this is a stupid question....Econ 101 was 35 years ago! Thanks.

-- Louisa (cagdma@homenothere.com), October 04, 1999.

Louisa,

I've never been through a depression so I can't say as to what might happen. The last severe downturn in our economy was in the early 80's when interest rates went to 17.5-18%. Your typical ARM at that time STARTED at 13-14%! If things get nasty again, many people, including myself, may have a tough time. A 5 year ARM that doesn't adjust for several more years, may provide you some time to get through this time however. I'm still not sure that Vicki has what she thinks she has but she might. There could have been some 5 year ARM's that adjusted every 5th year at one time, I've just never heard of one. If I had a 1 year ARM today, I would certainly look at trying to "fix" it to a constant rate for at least 5 years out.

Hope this is of some help to you.

Best Wishes,

Don

-- don (mrmtgman@aol.com), October 05, 1999.