Those who took out an Adjustable Rate Mortgage 3/1 (ARM 3/1) in 2005 should see a significant drop in their monthly payments when the rate adjusts this year. The typical ARM 3/1 from 2005 started with an interest rate around 6% with the 2008 adjustment rate determined by the LIBOR (London Interbank Offered Rate) or the one year treasury bill rate plus a fixed percent addition.
Looking around the Net it appears that the LIBOR rate for 3/28/2008 is 2.39 percent and one year treasury as of 3/21/08 is 1.35%.
If your original ARM loan was based on a 30-year amortization your current payment is around $600 a month per $100,000 of principle. A $200,000 mortgage is around $1,200 a month and a $300,000 mortgage is $1,800 a month.
Today your new LIBOR based rate plus the typical 2.25% addition (check your mortgage contract to see the specific rate used in your loan) would be 4.64% making your new adjusted monthly payment is about $516 for $100,000, 1032 for $200,000 and $1548 for $300,000.
The good news is that the monthly payments on ARM 3/1 loans from 2005 DROP about $84 a month per $100,000 of principle. Those based on T-bills drop $145 per month for each $100,000 of principle.
In summary, the monthly ARM 3/1 payments for a $300,000 principle drops from about $1800 a month to $1365, if you are tied to t-bills and $1548 if tied to LIBOR.
Warning! - Some major banks and mortgage companies are sending letters and making calls claiming that the monthly payments will go up instead of down. They will then "generously" offer you a fixed rate loan. IMHO these letters and calls evidence fraud attempting to trick people into paying thousands of dollars more than required. Save it or get details of who called, date and exact time, etc. Letters and calls evidencing attempted fraud could be worth a small fortune.