Where we Stand Today with Sub Prime Mortgages.
In the summer of 2005, sub-prime mortgage lending was at its peak. Rates were relatively low and lending guidelines were relatively loose.
There were two main choices for sub-prime loans. The 2/28 or the 3/27. 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” and every six months thereafter, the mortgage rate changed. The formula by which it changed was usually (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, LIBOR hovers near 3.15 percent, meaning that an adjusted mortgage rate will be in the neighborhood of 8.15 – 9.15 percent.
Many borrowers faced a 10.3 – 11.3 rate adjustment last year when the LIBOR was higher.
Certainly interest rate and payment increases of any amount can cause financial hardship. If you are a sub-prime borrower and are having difficulty be sure to contact your lender before you start missing payments.
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