If you currently have a FHA adjustable rate mortgage you may want
to take advantage of a FHA streamline refinance to convert the loan to a FHA fixed rate
mortgage. It is important
for you to understand how the FHA adjustable loan works and how it will adjust.
Following is the basic formula used to calculate what your FHA loan will adjust to:
Index + Margin = Interest Rate
Following
is the definition of each component of the FHA adjustable rate mortgage.
Index - this is the
economic indicator that fluctuates up and down. This is what will your ARM loan will
adjust on. It is based on the current rate of the 1 year Treasury Bill.
Margin - this is the amount
(in percentages) that will be added to the current index rate to determine your current
interest rate. This will be between 2.00% up to 2.75%. You can check the margin on your
original note.
The FHA adjustable
does provide you with some protection. There are limits in place that prevent the loan
from adjusting to much. Following is the basic caps of all FHA adjustable rate mortgages:
The Interest Rate cannot adjust up or down
more than 1% per year.
Over the life of the loan, the maximum
adjustments cannot exceed 5% above or below your original interest rate.
With this information, you can
determine what your new interest rate and payment will be at your upcoming interest rate
adjustment. If the interest rate is going to adjust to an interest rate that is higher
than the currently available fixed rate loan, you should consider refinancing.
The FHA fixed rate mortgage will
provide you the security of fixed monthly payments and a fixed interest rates, protecting
you against a possible increase in your monthly payments, which in turn may cause you to
have difficulty in making your mortgage payment.
Learn what your FHA streamline refinance
options are by clicking here to get a >>> Free Savings Analysis
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