Reset Rate

Categories: Banking, Mortgage

See: Reset Date.

When we first got into this whole homebuying thing, we stayed away from variable rate mortgages. They frightened us, because how would we ever know how much interest we were going to be charged if the rate kept changing every five seconds? Too scary, too unpredictable.

As it turns out, though, that’s not really how variable rate mortgages work. Sure, the interest rate can change, but it doesn’t do it all willy-nilly, and on a constant and unending basis. It usually adjusts, or resets, on a predetermined schedule, like every month or quarter. And it’ll only change if the underlying indexed rate changes. So if there’s no increase or decrease there, we won’t see an increase or decrease in our interest rate either.

Anyway, whenever the rate does adjust, whether on the first of the month or two days after every third blue moon (which would be a little weird), that date is referred to as the “reset date.” And the new interest rate we’re going to pay until the next reset date is called the “reset rate.” If we’ve got a variable rate mortgage and are wondering when our own reset rates are scheduled to kick in, we should refer to our paperwork and/or consult with our lender.

Related or Semi-related Video

Finance: What is Adjustable-Rate Mortgag...17 Views

00:00

Finance allah shmoop What is adjustable rate mortgage or arm

00:08

Well here's an arm and here's a leg and that's

00:11

What Renting the money to buy a home costs you

00:14

Yeah Okay Eight r m stands for adjustable rate mortgage

00:17

The rate well that's The interest cost of the money

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or the cost of renting that money to buy the

00:23

home Well the rate isn't it fixed in this case

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like five point seven percent for thirty years Where you

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know in advance that your monthly payments going to be

00:31

nine hundred forty three bucks a month or whatever it

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is that would be a fixed mortgage a fixed number

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You can count on it for all three hundred sixty

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payments And then the house is all yours So that's

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fixed then what's adjustable like yes the interest rate changes

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But how does it change Well in a standard arm

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there is some global standard on which the rates are

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often price like lie bore the london interbank borrowing offering

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rate It's one of the key things that price is

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the cost of renting money all around the world with

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the actual rate of libel or is generally reserved for

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banks like super cheap cost of renting money to banks

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who are very likely to pay back the money with

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no hassle that rate is more or less what banks

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pay for running the money along with blue chip customers

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in real life The banks then mark up a premium

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on top of the rate that they're paying to rent

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the money to themselves And then they resell or re

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rent that money teo their prized customers So the pricing

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of bank my views in renting money to joe six

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pack could be something like lie boer plus three percent

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or three hundred basis points So if libel or is

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it didn't say two and a half percent today the

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adjustable rate might be five and a half percent and

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all that's great honor given alone It might mean that

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for a while you're paying seven hundred twelve dollars a

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month for your house payment wonderfully cheap and in fact

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banks market these low rates initially to help people be

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able to afford tto by that new home and live

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of the dream You know the american dream usually with

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an arm there's a teaser rate that starts really low

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Like at live or live or plus ten basis points

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or something like ridiculously cheap for six months or a

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year something like that Then it has an incremental set

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of step ups in interest costs and venit adjust with

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the markets usually upward maybe upward by a lot Remember

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there's a reason it's called a teaser rate but then

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if we get inflation or a you know just bank

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nervousness for there are weird effects from brexit or the

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volume of transactions going through london or something weird happens

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Well then the liquidity drops and interest rates rise So

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now lie board goes up and up and up to

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four and a half percent and wealth contractually in your

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mortgage paperwork you have to pay live or plus three

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hundred basis points no matter what So now that's seven

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and a half percent interest on the dough you borrowed

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and well we're that toe happen It's likely that your

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monthly payment has skyrocketed from seven hundred twelve dollars a

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month is something more like twelve hundred dollars a month

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or more Can you handle that big of a payment

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Well have you done a fixed rate loan at nine

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Hundred forty three dollars a month Well you'd still be

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paying on that number but you rolled the dice with

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an arm and now you owe big bills There go

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that arm and a leg thing we warned you about 00:03:26.033 --> [endTime] eh

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