No. of Recommendations: 3
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: 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.
Print the post  


Useful Resources
Our Home Center has all you need to make buying and owning a home a great experience. Get or refinance a mortgage and much more!
Buying/Selling a Home FAQ

Mortgage Professor
Offsite resource for mortgage questions.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.