In the summer of 2005, sub-prime mortgage lending was at its peak.  Rates were relatively low and lending guidelines were relatively loose.

At the time, the “standard” sub-prime mortgage product was the 3/27 ARM.

The 3/27 had a few basic traits:

• A fixed, 3-year “starter rate”
  
• Every six months thereafter, the mortgage rate changed
  
• The formula by which it changed was (4.999 percent + the 6-month LIBOR rate)

If the loan was interest only, it usually converted to principal + interest at the first adjustment, too.

Because the summer of 2005 was the peak of sub-prime lending, it makes sense that the summer of 2008 is the peak of sub-prime adjusting.

For homeowners with adjusting sub-prime loans, there is some (relative) good news out there.

Today, the 6-month LIBOR hovers near 3.15 percent, meaning that an adjusted mortgage rate will be in the neighborhood of 8.15 percent.

This is versus the rate of 10.30 percent that sub-prime borrowers faced last summer when LIBOR was much higher than it is today.

Adjustments of any size can strain a household budget, though, so if you’re a sub-prime borrower and your pending adjustment will cause financial strife, be proactive — talk to your lender before you miss a payment. 

Lenders are often more willing to talk with “current” borrowers than with delinquent ones.

Related posts:

• Adjustable Rate Mortgages Adjusting To 3.000 Percent Right Now
• Should You Refinance Your ARM, Or Let It Adjust Lower?
• Don’t Rush To Refinance That ARM — It May Be Adjusting To 3 Percent Or Lower
• Your ARM Is Adjusting Lower. Is There A Downside To Letting It?
• Conforming ARMs From 2004-2006 Are Adjusting To 3 Percent

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