My Personal Finance Journey

Personal finance observation, musing and decisions in a journey toward financial independence by 2020 with at least $3 million.

By Topics

0. About (10)
1. My Progress (139)
2. Car & Home (107)
3. Credit (138)
4. Banking (33)
5. Saving (49)
6. Investing (308)
7. Taxes (89)
8. Spending (74)
9. Misc (97)
A. Archive (49)


Feb 2014 (3)
Jan 2014 (6)
Jan 2012 (1)
Apr 2011 (1)
Mar 2011 (1)
Feb 2011 (1)
Jan 2011 (1)
Dec 2010 (1)
Oct 2010 (1)
Sep 2010 (1)
Aug 2010 (1)
Jul 2010 (1)
Jun 2010 (1)
May 2010 (1)
Apr 2010 (1)
Mar 2010 (6)
Feb 2010 (2)
Jan 2010 (7)
Dec 2009 (3)
Feb 2009 (4)
Jan 2009 (8)
Dec 2008 (1)
Jun 2008 (2)
May 2008 (2)
Apr 2008 (5)
Feb 2008 (3)
Jan 2008 (15)
Dec 2007 (32)
Nov 2007 (6)
Oct 2007 (8)
Sep 2007 (9)
Aug 2007 (24)
Jul 2007 (2)
Jun 2007 (1)
May 2007 (3)
Apr 2007 (4)
Mar 2007 (4)
Feb 2007 (13)
Jan 2007 (6)
Dec 2006 (3)
Nov 2006 (7)
Oct 2006 (7)
Sep 2006 (6)
Aug 2006 (4)
Jul 2006 (10)
Jun 2006 (1)
May 2006 (3)
Apr 2006 (2)
Mar 2006 (6)
Feb 2006 (6)
Jan 2006 (3)
Dec 2005 (1)
Nov 2005 (9)
Oct 2005 (8)
Sep 2005 (13)
Aug 2005 (25)
Jul 2005 (16)
Jun 2005 (17)
May 2005 (19)
Apr 2005 (20)
Mar 2005 (24)
Feb 2005 (23)
Jan 2005 (36)
Dec 2004 (40)
Nov 2004 (34)
Oct 2004 (17)
Sep 2004 (21)
Aug 2004 (59)
Jul 2004 (37)
Jun 2004 (31)
May 2004 (29)
Apr 2004 (52)
Mar 2004 (49)
Feb 2004 (49)
Jan 2004 (31)
Dec 2003 (48)
Nov 2003 (52)
Oct 2003 (29)
Sep 2003 (8)
Aug 2003 (5)
Jul 2003 (2)
Jun 2003 (2)
May 2003 (5)
Apr 2003 (2)
Mar 2003 (2)
Feb 2003 (3)
Jan 2003 (29)


5 Year Interest Only LIBOR ARM

Contributed by mm | March 22, 2004 2:40 PM PST

Early this month I had an interesting experience exploring my refinancing options. With the Treasury rate declining substantially from its level one months ago, I decided to try my luck in LendingTree. (Background: I got my current mortgage thru LendingTree last August.)

I went thru a long form to give out my personal information, current mortgage status and requirements. I specified that I was looking for a 5-year or 7-year ARM, but I was also receptive to other creative options.

The next morning, I received offers from four companies. Most of them quoted me 3.875% to 4.0% APR for 5/1 ARM and 4.125% to 4.375% APR for 7/1 ARM. However, one lender, Magellan Capital Mortgage, put an interesting deal: 5-Year Interest Only LIBOR ARM at 3.375% APR. It is just too good to be true that I started to wonder why a bank can afford to offer a lower rate for interest-only loan: it is apparently riskier than the common 5/1 ARMs.

To make sure this is the right deal for me, I wrote the following email to Magellan Capital Mortgage:

Thank you for responding to my loan inquiry at lendingtree. Your offer seems way low than other lenders. Can you confirm that based on my credit, you will be able to give a 5/1 LIBOR ARM with fixed rate of 3.375% in the first five years? Is this an ARM or balloon? If possible, can you give me a Good Faith Estimate based on the information you have? Please also let me know if there are any prepayment penalty and hidden fees.

My enthusiam was quickly discouraged with the reply:

"The 5/1 Interest Only LIBOR ARM is not fixed for 5 years, it can adjust every 6 months depending on what the LIBOR index does. The 5/25 Balloon I quoted you is similar to an ARM but at the end of the 5 years you have the option of converting it to a fixed rate loan for the remaining 25 years of the loan. We also have a standard 5/1 ARM at 4.125%.

"Our company does not require you to pay a lock fee and there are no other fees associated with the estimates that I am sending you. We have a $975 processing and underwriting fee that we charge if we process your loan but that can be rolled into the loan amount so you would not be required to pay anything out of pocket."

Gosh! Should you communicate clearly in your offer that this is a 5/6 ARM instead of a 5/1 ARM? If you only say "5 Year Interest Only LIBOR ARM," shall people assume it is a 5/1 ARM, which is much more commonplace than 5/6 ARM?

Of course I rejected the 5/6 offer. With the current fixed income market climate, it is just too risky.

Once again, if something is too good to be true, it probably is not true.

This Post Has Received 23 Comments. Share Your Opinions Too.

Hiren Commented on November 22, 2004


Read you site once a week. Excellent Job. I see you decided to go with a ARM mortgage. I am currently deciding between a ARM and a FRM. However, I am leaning towards a FRM since we are in the increasing rate environment mode and generally everybody agrees the ARM rates in 3-5 years being higher than they are currently. I know you have a great rate for you ARM, however, are you not concerned that the rate might skyrocket in 3-5 years and increase your Debt to Income ratio? I am sure you have gone through those calculations. Just wanted to get your insight on that.


mm Commented on November 22, 2004

Hi Hiren, thank you for your comment. In my case, I did run some detailed calculation before making the ARM decision; my calculation shows no matter how fast rate increases, I would be better off with ARM for the first 7 years. My house is a start-home in my area so my wife and I believe we will move before 7 years. How long you expect to live in your next home is the most important factor in the ARM vs FRM decision, and it really depends on each one's stage of life. I cannot say for sure ARM or FRM is best for you.

Hope this helps,

Mossi N lvus Commented on June 16, 2017

MichaelNub Commented on September 14, 2017

online pharmacy cialis generic tetracycline sildenafil strattera

MichaelNub Commented on September 14, 2017

clomid cost azithromycin avodart cephalexin

MichaelNub Commented on September 14, 2017

doxycycline capsules hydrochlorothiazide

CharlesLiede Commented on September 15, 2017

tadalis sx azithromycin buy indocin soft tabs viagra

Brettlix Commented on September 16, 2017

buy bupropion where to buy lisinopril

MichaelNub Commented on September 16, 2017

buy fluoxetine trazodone buy cipro

Jkoslob Commented on September 20, 2017

non prescription cialis uk

cialis price

cialis for sale

buy no cialis online

Alenalob Commented on September 22, 2017

refill cialis

generic cialis online

buy cialis

cialis pill uk

Alenalob Commented on September 23, 2017

cialis forum panorama

cialis coupon

generic cialis

cialis forum panorama

Alenalob Commented on September 23, 2017

cialis generica inghilterra - generic cialis online

buy cialis

use of 36 hour cialis

Alenalob Commented on September 24, 2017

apparence de pilule de cialis - generic cialis online

cialis coupon

b cialis b

MichaelNub Commented on September 25, 2017

nebivolol dose saw palmetto prostate ciprofloxacin er 500 mg aceon pills methotrexate info clonidine child chocolate interaction amoxicillin side effects ear ringing synthroid empty stomach

MichaelNub Commented on September 25, 2017

xanax pregnancy arthrotec prednisone half life videx vx800 manuals long tern use of paxil

Vomirlob Commented on September 26, 2017

viagra achat allemagn

viagra generic

viagra generic

illegal take viagra abroad

Bailolob Commented on September 27, 2017

only now cialis price

cheap cialis

buy cialis

discounted cialis india

Bailolob Commented on September 28, 2017

cialis swiss - cheap cialis

cialis online

cialis dose for 80 year old

Bailolob Commented on September 28, 2017

florida cialis soft

cialis online

cialis online

cialis da 100 mg

Miloolob Commented on October 3, 2017

viagra plus for sale online - viagra generic


levitra viagra cialis price

Miloolob Commented on October 4, 2017

look here how to buy viagra - viagra


what dose viagra is right

Bennyanymn Commented on October 16, 2017

amitriptyline amitriptyline
lasix furosemide furosemide
advair advair hfa
buy allopurinol allopurinol zyloprim
view prozac
diflucan 100mg diflucan 150mg
zetia zetia
buy cytotec where can i get cytotec
neurontin neurontin
site here phenergan 25mg

Add Your Comments

Remember personal information?

(It will take a few moments for your comment to be published. Please do not close the window until then.)

Read More ... 138 Posts In The Same Category

This page was last rebuilt at October 16, 2017 08:14 AM PST. (486 Words)



Consumerism Commentary
Get Rich Slowly
My Money Blog
All Financial Matters
The Simple Dollar


Copyright 2003-2014, All Rights Reserved. (Privacy Policy)