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How Will The Current Mortgage Rate Drop Affect My ARM Rate?

By Ann White

Over the past few years, many mortgage lenders have offered their customers adjustable rate mortgages.  These types of mortgages have a fixed rate for a certain period of time, but eventually will see their mortgage rates fluctuate based on current interest rates.  The way the current mortgage rate drop will affect your ARM rate is dependent on various factors.

What Period of Your Loan

The first factor that will influence how the current mortgage rate drop will affect your ARM rate is what period of your loan you are in.  ARMs are broken into two periods; the fixed period and the adjustable period.  If you are still in the first few years of your loan, you are probably in the fixed interest period and the rate drop will have no affect on your rate.

Rate Floors

The second factor that will influence how the current mortgage rate drop will affect your ARM rate is if you have interest rate floors.  Interest rate ceilings and floors are loan parameters that affect how low or high your rate could ever be.  If the current mortgage rates drop below your set floor rate, then your new interest rate will be the floor rate.

Rate Benchmark

The third factor that will influence how the current mortgage rate drop will affect your ARM rate is the rate benchmark that is used in your loan.  Many ARMs are based off of the certain benchmarks, such as T-Bills or LIBOR.  These benchmarks are not directly correlated with typical mortgage interest rates.  Because of this, just because current mortgage rates fluctuate, it will not necessarily have an impact on your loan.

Related posts:

1. Will Mortgage Rates Drop Again?
2. How Do Fed Rate Cuts Affect Mortgage Rates?
3. How do I calculate the rate on my adjustable rate mortgage?
4. How Do Rising Mortgage Interest Rates Affect My Current Loan?
5. What Factors Affect How Much My Mortgage Payments Will Be?