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Personal Finances / Buying or Selling a Home
|Subject: Re: financing the next house||Date: 2/16/2014 9:04 PM|
|Author: Rayvt||Number: 126823 of 128371|
the 1-month LIBOR ARM recasts each month, more of the fully amortized payment is going toward principal than would the fully amortized payment for a 5/1 ARM, thereby making the 1-month LIBOR ARM as stable as a 5-year ARM and saves interest, too.
And here I was thinking that CC was quite risk-averse, based on discussions on another board.
Some quick googling says that 1-mo LIBOR ARMs typically have a 1% cap (per MONTH!) and a lifetime cap of 6%.
Current Libor is 0.16%, so the margin would seem to be 1.6%.
This site has historical 1-mo LIBOR rates: http://mortgage-x.com/x/indexes.asp. While LIBOR has been below 0.5% for the past few years, it historically has jumped around a lot. Dec'07 was 5.04% but Dec'08 was 1.12%. But it can jump *up* quickly as well. In fact, Jan'04 was 1.1% but Jan'05 was 2.6%.
With 1.6% margin and a $750K loan the interest would be $1687 at 1.1% LIBOR and $2625 at 2.6% LIBOR. That's a pretty big jump in payment.
Indeed, at the current 1.75% rate, the payment is $1094 interest + $1995 prin = $3089
But a mere 3% jump in the rate, and the payment would be $2970 interest + 1995 prin = $4965.
Luckily the lifetime cap would be 7.75%. Not completely outrageous, but a heck of a lot higher than 4.30%.
the 1-month LIBOR ARM as stable as a 5-year ARM
Completely false. The 1-mo LIBOR ARM resets every month, including the first month. The 5/1 ARM only resets once a year, but not at all for the first 5 years.
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