Someone please explain mortgage interest rates on adjustable rate mortgages

[Ed MOTHERFUCKING G]

Variable rate loans of all kind have a few components

An index - this is typically Prime, The Fed Funds Rate, SOFR, BSBY, etc. Google what those are, and when they're used, but they are the part that adjusts when you year "the fed is raising or lowering rates". Those indexes go in the same direction.

A spread - this is what the bank sets. It depends on your credit, the profitability of a business in a business loan, the collateral, etc, various factors that basically equate to risk and cost of funds for the bank. This does not change.

So, a variable rate is "index + spread" or "index - spread"

Prime - 1.25%
SOFR + 250bps
Fed Funds + 10bps

So, right now, "rates" (those indexes) are high because the fed is trying to stop and slow inflation...they do that by slowing the economy...by making it more expensive to borrow.

This is how the economy works.

Right now inflation went down for the first time since 2020. There will most likely be a rate CUT in September when the fed meets.

The highest rates you will see for some time...are right now. We're at the peak.

I do this for a living. Any questions?

 

[Won Won]

People taking this buffoonery seriously

 

[The Realist Perspective]

So if the rate is 7, the bank can just add 2%, thats fukked up.

Be honest, can Trump fix this?

Adjustable rate mortgages are dangerous due to this breh. You never quite know what you'll be paying the life of the loan. As for the second question let me get my resident trumpster, @Neo TheInsurrectionistONE

 

[T-K-G]

Be surprised an adjustable rate adjusts brehs



Imagine the person OP is helping with the face seeing him making a coli thread for assistance

 

[Tony D'Amato]

Variable rate loans of all kind have a few components

An index - this is typically Prime, The Fed Funds Rate, SOFR, BSBY, etc. Google what those are, and when they're used, but they are the part that adjusts when you year "the fed is raising or lowering rates". Those indexes go in the same direction.

A spread - this is what the bank sets. It depends on your credit, the profitability of a business in a business loan, the collateral, etc, various factors that basically equate to risk and cost of funds for the bank. This does not change.

So, a variable rate is "index + spread" or "index - spread"

Prime - 1.25%
SOFR + 250bps
Fed Funds + 10bps

So, right now, "rates" (those indexes) are high because the fed is trying to stop and slow inflation...they do that by slowing the economy...by making it more expensive to borrow.

This is how the economy works.

Right now inflation went down for the first time since 2020. There will most likely be a rate CUT in September when the fed meets.

The highest rates you will see for some time...are right now. We're at the peak.

I do this for a living. Any questions?

I told the person they were fortunate it only went up like $500. I believe they inherited it from parents who took out a 2nd mortgage, and then just kept paying the 1st. But ignored the 2nd. So I think that fukked up them refinancing.

Basically the only way to stop volatile changes like that is to refinance right? To a fixed rate?

 

[Tony D'Amato]

Be surprised an adjustable rate adjusts brehs



Imagine the person OP is helping with the face seeing him making a coli thread for assistance

This thread explained more than the indian dude the bank had.

 

[Tony D'Amato]

People taking this buffoonery seriously

Typical liberal arrogance.

 

[Mike Nasty]

People taking this buffoonery seriously

I'd put money on him being serious. But damn he could have made this thread before he signed it.

 

[Ed MOTHERFUCKING G]

I told the person they were fortunate it only went up like $500. I believe they inherited it from parents who took out a 2nd mortgage, and then just kept paying the 1st. But ignored the 2nd. So I think that fukked up them refinancing.

Basically the only way to stop volatile changes like that is to refinance right? To a fixed rate?

Yes but it would be stupid to do so now because he'd be locking in a high rate. The best advice would be to ride it out until rates go down which will likely start slowly this fall.

 

[Born2BKing]

Long story short, don't agree to no damn adjustable rate loan.

 

[Ed MOTHERFUCKING G]

Long story short, don't agree to no damn adjustable rate loan.

It would actually make sense to go variable over fixed today because we're at or near the peak of rates for the foreseeable future, then refinance to fixed thereafter. Personally, I don't like uncertainty so I get what you're saying.

 

[Bubba T]

So if the rate is 7, the bank can just add 2%, thats fukked up.

Be honest, can Trump fix this?

To make it clear, ARMs existed and will continue to exist regardless who is President. There is no “fixing”. These variable rate loans are an option, but you should be well informed of what you are getting into when someone tries to sell you this type of loan.

This was some of the stuff you saw people take out during the last housing boom because they assumed rates would stay low ‘forever’.

 

[Tony D'Amato]

Yes but it would be stupid to do so now because he'd be locking in a high rate. The best advice would be to ride it out until rates go down which will likely start slowly this fall.

Thank you. This thread has drastically changed my opinion of u.

Long story short, don't agree to no damn adjustable rate loan.

Pretty sure it was old black ppl that fell for some slick shyt.

In California, property is crazy rn. Million $ homes that are tiny as hell

 

[Ed MOTHERFUCKING G]

Thank you. This thread has drastically changed my opinion of u.

And yet it did nothing of my opinion of you.

 

[Bubba T]

It would actually make sense to go variable over fixed today because we're at or near the peak of rates for the foreseeable future, then refinance to fixed thereafter. Personally, I don't like uncertainty so I get what you're saying.

Most buyers are not sophisticated enough to be playing these kind of games with their mortgage. Refinancing is not that difficult, they are much better off not messing with ARMs at all.