What does "Conf ARM LIBOR 5/1 5-2-5" mean???

Asked by Antonio Ruiz, 85648 Tue May 4, 2010

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6
Robert Spino…, Mortgage Broker Or Lender, Mill Valley, CA
Tue May 4, 2010
Antonio,

This means that the loan product is a 30 year term during which the first 5 years are at the fixed rate you're being quoted. After those first five years (60 months) are up, the loan will convert to an adjustable rate mortgage (ARM) for the remaining 25 years. Each year during that time (that's where the "1" comes from) there will be a rate adjustment based on the index of the loan, plus a fixed margin. Once the loan begins its adjustments it will have rate caps. The first "5" in the "5-2-5" means that the rate can adjust no more than 5% over your start rate. The "2" means that each year from that point, the rate cannot adjust more than 2% (up or down) from the previous rate, and finally, the rate has a lifetime cap of 5% over the start rate.

Hope this helps, but let me know if you need additional information.

Thank you,

Rob Spinosa
rspinosa@rpm-mtg.com
877-270-5959
3 votes
THE FIRST '5' IS THE AMOUNT OF YEARS IT'S FIXED FOR IT'S NOT ADJUSTING AT ALL DURING THAT TIME. SO IT'S FIXED FOR THE FIRST 5 YEARS, IT DOES NOT ADJUST DURING THE FIRST FIVE YEARS AT ALL
Flag Sat Dec 12, 2015
Bob Hope, Home Buyer, New York
Thu May 6, 2010
Hey Rob you wrote:
"The first "5" in the "5-2-5" means that the rate can adjust no more than 5% over your start rate."
Then, about the second 5, you wrote:
"and finally, the rate has a lifetime cap of 5% over the start rate. "
So both 5's mean the same thing?
1 vote
Matt, , 97701
Wed Aug 14, 2013
The confusion on a 5/2/5 as written below is only because both the first and last numbers are 5. So to help illustrate this answer let's pretend it is a 3/2/5. In this case, the initial change could only move by 3 points, then 2 points up or down each subsequent year, with a lifetime cap of 5 points higher. When it is a 5/2/5 it makes it seem as if the 5's are more or less the same thing, but not all ARM's have the same caps. I hope this helps.

Thanks, Matt

Matt Bassitt
Matt@northwesternhomeloans.com
Mortgage Professional
NMLS - 114939

P: 541-323-7000 | F: 541-323-7003
NMLS – 955372

1051 NW Bond St. Suite 410
Bend, OR 97701
0 votes
Adam, Home Buyer, San Jose, CA
Fri Sep 9, 2011
Good question, Bob.
I also could not understand this two 5s. The answer is that you expect the bank to raise your interest by the largest amount in the end of the fixed term period. But this might not be the case. they may use any number between 5 and -5.

Adam
0 votes
Dan Chase, Home Buyer, Texas City, TX
Thu May 6, 2010
The subtle subtext of what it really means is this: GET A FIXED RATE LOAN! Adjustable mortgages will adjust higher. Fixed will remain low. Over time an adjustable mortgage will hurt once it resets. That is precisely what is causing many foreclosures today and tomorrow.
0 votes
I disagree. I have had much success with them and have paid down my loans during the fixed time period so that when it comes times to refi again (if it makes sense) I have my principle balance down. I had to qualify for the higher interest rate, it wasn't like the bank just gave it to me.
Flag Mon Aug 15, 2016
Antonio Ruiz, Home Owner, 85648
Tue May 4, 2010
Rob,

wow great response! it actually makes sense to me lol...thanks alot!
0 votes
yeah the 5/2/5 is like so:
Say for example the start rate is 3%.
Then when the rate starts to adjust, after year five, so in year six, that rate cannot go higher than 5 percent from that rate. So 3+5=8%. 8% would be the max the rate go increase to in year 6.
Then every year thereafter, the max the rate could increase would be 2 percent above 8%. But the rate can also go down.
And the last 5, in 5/2/5, means that the rate will cap out to a max of 5 percent + start rate of 3, so 8%. 3+5=8%.

Ty
1kcashdaily.com/


So the max the rate can adjust to, the max is
Flag Wed Oct 16, 2013
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