The current situation
This is part 3 in the on-going saga of selling our rental house in Virginia. If you missed the first two parts, just follow the My Short Sale tag.
As the date for our first mortgage ARM reset draws near, we’ve been increasingly concerned about what it’s going to mean to our finances. The new, higher payments are due to start in May, but we haven’t received anything from the bank yet to tell us how much higher they’ll be.
Even though interest rates have dropped and our interest rate will probably go down, our payment is still going to go up. Here’s why…
Our loan is based off the 6-month LIBOR and then they tack on a 3% margin and round (up or down) to the nearest 1/8% (0.125).
A recent LIBOR was 1.78%, so if it were to reset at that rate, our interest rate would go down…
1.78% 6 month LIBOR
+ 3.00% Margin
4.78% New interest rate
Once rounded to the nearest 0.125, my payment (for the next 6 months) will be based on 4.75%.
Which would be cool…a drop from 6% to 4.75% should mean a drop in payments, right?
Not so fast…
Remember I said it was an interest only 3 year ARM? Well, the interest only portion expires in April too…so I have to start paying fully amortized payments as well.
So instead of going down, my payment will still jump a hundred dollars a month. Let me show you the math…
Current interest only payment at 6% - $1,212
New interest only payment at 4.75% - $ 957
New fully amortized payment at 4.75% - $1,327
We were $300/month out of pocket already on the house and now we’ll be about $425 before any additional maintenance costs.
Oh…and the property value’s dropping…which rules out selling…more on that next week.
Tags: mortgage education, My Short Sale
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