Here is the question before I answer..

“I have a situation specific refinance question. I purchased a home in CA in 2004 for approx $600k using a 5/1 ARM with a 3.875 percent rate putting $60K down.

In the interim my family had an unexpected financial strain and depleted a HELOC in the amount of $250k.

At this time we owe $750k on a home worth approx $550. We are making the payments and do not expect to struggle to do so, however I am not sure what will happen w/ the 5/1 ARM or if I will be able to re-fi the original loan.

Any recommendations/suggestions?


Well refinancing or selling is out of the question since you are so far “underwater”.

So what will happen to your 5/1 ARM is when the five year fixed period is over…the rate (and subsequently the monthly payment) will adjust. The rate will then re-adjust every 12 months for the life of the mortgage.

You should dig out your mortgage note and see what the maximum adjustments are…both the initial or first adjustment…and what are the caps on rate increases or decreases just so you can plan for the new payment.

Locate your margin and the index your ARM uses for adjustments…LIBOR, COFI, COSI, MTA…add the margin to today’s index rate for a total rate.

Then use that rate to discover your new monthly P&I payment. This will give you a sense of what you’d pay if your mortgage adjusted today.

The good news is rates are dropping so you may not be in as much trouble as you thought!

Thanks…great question!

Good Luck!

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