Q: I think my lender is using the wrong index when resetting my ARM's interest rate. What do I do?
A: There can be instances where the mortgage lender can change the index used to govern your adjustable rate mortgage. This is usually allowed in instances where a given index is no longer made available by its source; in such cases, a substitute can be used. This most recently happened with the merging of a number of banking regulators, which discontinued certain cost-of-funds indexes, for example.
That said, if you have documentation which shows that it should have been a LIBOR-based ARM, or it was a Treasury-based ARM where they used the LIBOR, for example, you should get in touch with your mortgage servicer as soon as possible.
It might also be a good idea to thoroughly review your mortgage note or adjustable-rate rider to determine the proper index name and source, and even take the time to calculate what your interest rate should have been at each adjustment, so you can know whether or not you might be due a refund.
To double check your lender’s calculation, be sure to utilize HSH.com’s ARM Rate Check Kit. This kit explains step-by-step how to calculate your new interest rate.
In the event of an error in the adjustment of an ARM's interest rate, regulations generally required that the lender is liable for any overcharges, while you are not responsible for any shortages as a result of the lender's error.
Honest mistakes can and do happen. Also, you might even find that things have worked out in your favor, for now at least. Still, that is unlikely to always be the case, so you'll want to correct the error sooner rather than later.
A 25-year expert observer of the mortgage and consumer debt markets, Keith Gumbinger has been cited in thousands of articles covering a wide range of consumer finance and economic topics in outlets ranging from the Wall Street Journal to the Bottom Line newsletters. He has been a featured guest on national broadcasts for CNN, CNBC, ABC, CBS and NBC television networks and has been heard on NPR and other national and local radio programs. Keith is the primary researcher and writer for HSH.com's MarketTrends newsletter and has authored or co-authored a number of consumer guides on mortgages, home equity, refinancing and more.