Sub Prime Mortgages are finally phasing out.

In the summer of 2005, sub-prime mortgage lending was at its peak. Rates were relatively low and lending guidelines were relatively loose.

There were two main choices for sub-prime loans. The 2/28 or the 3/27. At the time, the “standard” sub-prime mortgage product was the 3/27 ARM.

This loan had a “teaser rate” fixed for the first 3 years and then it would adjust every six months thereafter. The rate would usually adjust based on the 12-month LIBOR plus a margin of 5.999 percent. In most cases the loan started out as interest only then became a full principal and interest mortgage.

Because the summer of 2005 was the peak of sub-prime lending, it makes sense that the summer of 2008 is the peak of sub-prime adjusting.

For those borrowers that chose a sub-prime mortgage, there is some relatively good news. The LIBOR has fallen significantly since the FED started lowering rates. Currently it stands around 3.15 percent which means most adjustments will be in the 8 - 9 percent range.

This is versus the rate of 10.30 - 11.30 percent that sub-prime borrowers faced last summer when LIBOR was much higher than it is today.

Certainly interest rate and payment increases of any amount can cause financial hardship. If you are a sub-prime borrower and are having difficulty be sure to contact your lender before you start missing payments.