The good news is - 2 years is a LONG time to get your finances situated :) Find ways to save money each month - cut back on non-necessities, consider a 2nd job, etc. This way you will have some money to pay down more of your principle if needed (to help with the $0 equity problem). You can try to refinance again later (before the 2 yrs is up).

Tue Jul 22 2008, 22:44

Hi Karen,

Take a deep breath - try to relax..... stress will only make things worse and your situation may not be as bad as you perceive it to be so try not to lose any more sleep over this.

I am not a mortgage banker or an attorney - I am a real estate broker in SC. The advice I am about to give you comes from my experience in my market. I am an expert in neither law or finance. Please check with a financial advisor in your state to verify the following. All that said......

If I understand you correctly, you are 3 years into a 5/1 interest only ARM. This means that you have a loan where the interest rate will stay the same for 5 years (which is two years from now). The rate will able to adjust to the market after that date. You are not reducing the original amount of your loan, you are only paying interest on the original amount.

There should be three factors that you should look at to determine how much your payment can go up. The first is what is called the Index. This is a rate in the market place that you can easily find - it could be a treasury bill, the LIBOR rate, or any other rate - look in your loan documents and find the source of the index, then look on-line or in the Wall Street Journal to see what that index is today. The index is what your interest rate is tied to that allows your rate to go up or down.

The second thing you need to find is your margin. The margin is the number that you add to the index to determine what your interest rate could be. The last factor are the caps on how much a loan can go up (or down) in any one period as well as a cap that would show how much the loan can ever go up.

For example, let's say your current interest rate is 4.5% and it is tied to the 1 year Treasury Bill (T-Bill). The margin is 2.75% and the caps on the loan are 2/6 -(2% rise in any one period and 6% over the life of the loan). Let's pretend that the T-bill rate in 2 years is 2.5 - you would add the margin 2.75% to the T-bill rate of 2.5 and get an interest rate of 4.75%. Your new interest rate would be 4.75% for the next year. Since the interest rate did not go up more than 2%, the interest rate would adjust upward. If the T-bill was 5% - you would add the margin of 2.75% and get 7.75%. Since your cap is 2% during any one year, your interest rate could only increase to 6.5%. Over the life of the loan the interest rate could never go any higher than 10.5% (a lot I know but not as bad as it was in the early 80's).

The bottom line of all this means that you have two more years at the same interest rate before your interest rate goes up and there is a good possibility that your rate won't go up as much as you think it will. Unless your loan calls for a balloon payment at the end of the 5 year term, your interest rate will just become adjustable every year and you won't have to re-finance unless you want to.

Also, no one can predict what the market will do over the next two years. There is a possibliity that the market will stabilize and perhaps even appreciate again.

On the bright side, if I am interpreting what you are saying correctly, you will have the same payment for the next two years.

My best recommendation to you is to relax, talk to the mortgage person who helped you with your loan in the first place, and map out a best case and a worst case scenario.

I hope that this explanation has helped and wasn't too confusing.

Best of luck to you.

Mon Feb 25 2008, 19:02

Hello Karen,

The advice below is correct, speak to a mortgage professional and weigh out your options. If indeed your appraisal will not come in at the right amount, there may be little you can do, but its worth a shot. Also consider contacting your mortgage company to see if your eligible for a loan modification. A loan modification might get you into a fixed rate, lenders across the nation are doing many of these modifications to afford homeowners the ability to keep their homes.
Good Luck
http://www.c21infinity.com

Mon Feb 25 2008, 17:28

I know how stressful this can be so please talk with a Mortgage Broker. I have a name (Southern California) is it helps...Gary Sayble 310.689.2401. He can run different scenerios for you....there is time...good luck...Eileen Lanza, Realtor with
Keller Williams Realty 323.810.7935http:// www.eileenlanza.com

Mon Feb 25 2008, 14:58