Beware if your Adjustable Rate Mortgage is LIBOR Based!

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Everyone has read it in the newspapers and heard it on the television, the debt and banking problems of Greece, Spain and Europe. Everyone wonders how it will affect the United States or more importantly, me! The affect has been positive on the United States mortgage rates because everyone is moving their money to US debt since it looks to be much more stable than European debt.

If you are a homeowner and enjoyed the wonderful low rate of an adjustable rate mortgage, be very careful. If your ARM is a LIBOR arm, all indications is your rate will be increasing very soon. The LIBOR is Europe’s equivalent of the Treasury. As the European banking system continues to struggle, the LIBOR will continue to increase to take into account the risk associated with the potential of default of debt. In the short-term, borrowing costs are climbing faster for European banks than American and the cost of insuring against default on debt issued by European financial firms is climbing.

The possibility exists this event could have significant upward pressure on the LIBOR rates which will result in you LIBOR based ARM to increase in the next adjustment period. If we have a catastrophic event occur in Europe’s banking system, it will significantly affect your LIBOR based ARM. Do miss out on the opportunity to refinance your home on a fixed rate mortgage while rates are low. A storm looks to be brewing in Europe that could affect your payment.

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