How does Fed Rate cuts affect an ARM interest only loan?

We are currently on an interest only loan that is going to adjust in August, I %26#039;ve been hearing that Fed Rate cuts may actually lower our payment. How does it work, current rate is 5.75 and I know that if it goes up is going to go 2.25 which puts us at 8.0, way higher payment by the way.... But how do you figure out if it is going to lower? Thanks for the time... I%26#039;ve been looking on the web but I can%26#039;t find any articles on how it works when they actually lower down instead of going up... Help please...

How does Fed Rate cuts affect an ARM interest only loan?

You need to dig out your mortgage documents, particularly, the NOTE. Then read the terms of the note to determine what you index is, and what your margin is. Also any caps that come into play. The Fed action has little to do with your loan. If you can find your note, and determine the answers to those questions, you can figure what is likely to happen in a few months. If you have any problems with it, contact me for the calculations.

How does Fed Rate cuts affect an ARM interest only loan?

They don%26#039;t. ARM rates are tied to other indecies:

11th District cost of funds

1-year annualized treasury rate (from the 6-month bill)

LIBOR (London Inter-Bank Operating(?) Rate)

Check your mortgage deed or legal documents to find the INDEX applicable to your loan.

How does Fed Rate cuts affect an ARM interest only loan?

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How does Fed Rate cuts affect an ARM interest only loan?

Sorry you got the impression that it would go down if rates are cut. This is not true at all. Your rate is based off other factors. If you look at your closing papers it should show you what your rate will be at certain points during the loan. I would go read that carefully.