Orlando Mortgage Blog

Borrowers with Adjustable Rate Mortgages (ARM's) nearing adjustment may get a reprieve as rates fall and Fed cuts materialize. Most important, the non-related LIBOR index, which most ARM's are tied to today, is currently dropping (1yr was at 3.480% at time of writing).

How will that help? It's simple math. First of all, the LIBOR index of 3.480% added to the typical 2.25% LIBOR margin used today would be 5.730%, then the caps kick in the equation. The typical rate caps would be 5/2/5 Let's say the loan start rate had been 4.50% for the first 5 years. Take the 5.730% number above, subtract the start rate from it and as long as the change is not greater than the 5% cap for the first adjustment the new adjusted rate will be 5.75% (rounded to nearest .125%). Or, a 1.25% rate increase for the next period. Only ninety days ago the 1 yr LIBOR (10/17/07) was 4.96% which would have made the adjusted rate for the next year to be 7.25% rounded and that would have been a 2.75% increase. Assume the balance is $200,000 and here's the payment swing: The 5.75% rate payment would be $1,167 PI and the 7.25% rate payment would be $1,364 PI or $197 more per month. That's a big jump for many homeowner budgets. If they started with one of the "Pay Option ARM" type loans that so heavily discounted the start rate to levels like 1%, 2% or 3% let's say, the payment adjustment difference can be even more dramatic to say the least.

So the index decline alone on this example dropped the payment almost $200 per month in the last 3 months from where it could have adjusted up to. And this example applies if the owner did nothing. The payment is improved for the next 12 month cycle. With rates coming down, assuming the borrowers credit history is satisfactory and they can meet standard documentation standards for the loan they might apply for, this may be the right time to refinance it into a fixed rate product and get out of the ARM race altogether.

Bill Wilbanks /  www.OrlandoMortgageMasters.com    

It has recently come to my attention that state auditor's have recently been contacting some folks that added or deleted someone from the Warranty Deed within the last several years (most recently three years prior to the call) to inform them of additional Documentary Deed Stamp Taxes due the State of Florida from that earlier transaction. Why? Well apparently some property owners had deeded out to add or remove someone from the Warranty Deed and done it for reasons such as "Love and Affection" and therefore paid only minimal deed stamp taxes ($10.00 let's say). That is correct as long as the property is free and clear (no mortgage). However, according to the State of Florida if there was a mortgage or mortgages on the property at the time of the re-deeding of ownership (parent and son to the parent alone or a husband added a spouse to the deed), the minimum documentary stamp taxes due on the deed would be based on the amount of the mortgage(s) in place at the time of the transaction. So, let's say there was a $100,000.00 mortgage in place when the deed ownership was changed.  Instead of the original $10.00 paid and accepted by the county, based on "Love and Affection", the correct tax that should have been paid was $100,000.00 x .007= $700.00. The amount now owed to the state is $690.00. Penalty and interest can be added, but prompt payment may nullify additional monies required by the state. At least ask. Thought you'd like to know...

Bill Wilbanks /  www.OrlandoMortgageMasters.com