By August of 2005, the sub-prime mortgage market was in high gear. Rates were at 40 year lows and borrowers only needed to fog a mirror to get a loan.
Sub-prime loans came in two main flavors. The 3/27 or 2/28. Simply put the teaser rate was locked for either 2 years or 3 depending on the choice. At its height the 3/27 was the product of choice.
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.
Currently the 6 month LIBOR stands around 3.15 precent. This can be relatively good news for many people with sub-prime loans. It means that the adjustment will be somewhere in the 8 - 9 precent range which is down from 11 - 12 percent not long ago.
Borrowers last summer faced a much higher rate because of where the LIBOR stood.
Obviously an interest rate increase of any size can cause difficulty. If you're a sub-prime borrower and having difficulty be sure to contact your lender before you go into default.
Sub-prime loans came in two main flavors. The 3/27 or 2/28. Simply put the teaser rate was locked for either 2 years or 3 depending on the choice. At its height the 3/27 was the product of choice.
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.
Currently the 6 month LIBOR stands around 3.15 precent. This can be relatively good news for many people with sub-prime loans. It means that the adjustment will be somewhere in the 8 - 9 precent range which is down from 11 - 12 percent not long ago.
Borrowers last summer faced a much higher rate because of where the LIBOR stood.
Obviously an interest rate increase of any size can cause difficulty. If you're a sub-prime borrower and having difficulty be sure to contact your lender before you go into default.
About the Author:
If you are looking to Buy a Home then check out Rob Kosbergs' Detailed FREE Report on Buying your Perfect Home with a Zero Down Mortgage or for up to date Mortgage info visit his Mortgage Blog
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