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Have an ARM, currently at 3.125. Readjusts each May and is tied to 1 year LIBOR. I'm assuming rate will go up in May 2012. If I make additional payments prior to that, what happens? Will I be assessed the difference between what I paid and what the new payment would be? Thanks.
Check the documents from your closing and make sure there is no prepayment penilty. It would be listed on the Good Faith Estimate or the Truth In lending. Be carefuly with the one year arm. The interest rates are to unpredictable these days. Also on the Truth in lending it should have an adjustment cap. Make sure of what your adjustment cap is and if you could make that payment should worst case scenario happen and your rate adjust up to that cap.
Thanks for the reply.
The ARM was a 5/1 in 2004. It has adjusted 3 times already. There is no prepayment penalty. The max is 9% and the calculation is 2.25 + 1 year LIBOR. So far that's been really good and I hope it continues (LIBOR was .74 the last time). So if I prepay, there won't be additional charges?
Correct, no additional charges, they don't charge you the interest you would have paid.