From Realtor Magazine Online, Daily Real Estate News December 13, 2007
The biggest beneficiaries of the Federal Reserve’s rate cut are borrowers with adjustable-rate mortgages linked to one-year Treasury bills, says Greg McBride, senior financial analyst for Bankrate.com.
On an ARM with a margin of 2.5 percentage points above the Treasury index, the new rate would be 5.7 percent, McBride says, instead of the 7.5 percent it would have been if the loan had reset in July. For a homeowner with a $200,000 mortgage balance and 27 years left on the loan, that works out to an increase of $140 a month, vs. $370 if the rate had reset a few months ago.
About half of adjustable-rate mortgages are tied to Treasury securities. However, the Fed rate cut will not help borrowers whose adjustable-rate mortgages are tied to the London Interbank Offered Rate, or LIBOR index. Most subprime loans are tied to the LIBOR.
Source: USA Today, Sandra Block (12/12/2007)
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