0
If you have a copy of the note that you signed for the loan on your property, you can find out where the interest rate you are being charged is coming from. With the little information that you gave, I am going to make a couple of large assumptions that may or may not be correct.
I will assume a basic understanding of how an ARM works. If you do not have a basic understanding, I could write up a response to describe it in better detail.
In general an ARM will adjust after the initial fixed period to the value of INDEX + MARGIN (constrained by any caps specified in the note for each adjustment period).
With a note rate of 10% in this current market my guess is that your financing was done as a Subprime or Alt-A loan. Unfortunately, loans like this are a large cause of the problems we have today. In general the Margin was much larger than a traditional ‘A’ paper (fully documented/good credit borrower). And most Subprime and AltA loans were based on the LIBOR Index.
My assumptions, and we all know what assuming makes me:
INDEX: LIBOR
MARGIN: HIGH (>~ 6.00%)
PROGRAM: 2/28 or (2/1 LIBOR ARM)
The problem with the inflated margin is that it is a fixed number that doesn’t change even if the market does. It is simply added to the current market index that your loan was based on.
So in the example of a 2/28 (2 Year Fixed, then adjusting every year after that for life of 30 years), you would have a 2 Year period of 7%, and then at the anniversay of the 2nd year you would adjust to LIBOR.
For example, if 10/17/2008 was the date that your loan would be fully adjusted. Meaning that your loan’s 2 year fixed period was over and it adjusted to INDEX + MARGIN, (ie: Wall Street Journal as of 10/17/2008). 3.97875%
If your margin was 6.0% then today your loan would be : 6.00% + 3.97875% = 9.97…% rounded up to the nearest .125% in rate. Therefore you would have a 10.0% note rate.
A more normal margin of 2.25% would put the same borrower at a FIR (fully indexed rate) of 6.228% rounded up to 6.25% note rate.
If that doesn’t help please give me more detail and I will attempt to shed some light.
My ARM just readjusted at 10% interest up from 7% why is the rate so high when new loans are around 5-6%?