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by: RobKosberg
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Word Count: 225

By mid 2005, the sub-prime lending problem (to come) had reached its peak. Interest rates were lower than they had been in decades and underwriting standards were very lax.

Borrowers typically chose between two main products of sub-prime loan. They either locked the initial rate in for 2 years or for 3. The predominate choice at the time was the 3/27.

The 3/27 would have a teaser rate that remained fixed for 3 years then begin adjusting. It would usually adjust to the 6-month LIBOR plus a margin of 5.999 percent. This caused rates to sky-rocket at the time of adjustment. Further problems occured when the loan now became a principal and interest mortgage instead of interest only.

Since around August of 2005 was the very peak of sub-prime lending, it only makes sense that the height of its adjustments would take place now.

For homeowners with adjusting sub-prime loans, there is some (relative) good news out there. Today, LIBOR hovers near 3.15 percent, meaning that an adjusted mortgage rate will be in the neighborhood of 8.15 - 9.15 percent.

Borrowers last summer faced a much higher rate because of where the LIBOR stood.

Obviously an interest rate increase of any size can cause difficulty. If you're a sub-prime borrower and having difficulty be sure to contact your lender before you go into default.

About the Author

If you are in the early stages to Buy a Home then check out Rob Kosbergs' Detailed FREE Report on Buying your Dream Home with a Zero Down Mortgage or for up to date Mortgage info visit his Mortgage Blog

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