I also had a variable ARM that converted in 2010 to 3.63 percent fixed after the market crashed. It had started out at 8-something percent (bought at the height of the market in 2005 and in a bad-credit hurry, too).
Our house payment is less than half of what it was when we bought the house. The downside is it is now worth only a bit more than half of what we paid for it :lol:
How do you not go crazy!
Anyway, unless you are in an interest-only ARM or a negative-interest ARM (with either you would be paying no principal so it's easy to check) an ARM adjustment any time soon would probably lower your payment like Bmezo says.
Here's how you can figure it out. In your mortgage papers, there will be a large multipage document named ADJUSTABLE RATE NOTE. The interest rate information will be in there. It will say something like:
"Interest rate and scheduled payment changes: Each date on which my interest rate will change is called a Change Date. The interst rate I pay may change on xx/xx/xx bla bla bla"
Then under that:
"THE INDEX: Beginning with the first Change Date my interst rate will be based on an Index. The "Index" is the xxxxxxx" (mine was based on the highest "Prime Rate" as published by the Wall Street Journal. There are other rate indexes. Take the name of your index and type into google to find out what the current prime rate is)
Then under that:
"CALCULATION OF CHANGES: Before each change date the lender will calculate my new interest rate by adding x.xx percent, referred to as the Margin (mine was .38 percent) to the Current Index....."
So now take the current prime rate of your index and add the margin. That will be your lowest rate possible after you consider this:
"LIMITS ON INTEREST RATE CHANGES: Interest rate will never be increased or decreased by more than 3 percentage points. For all change dates thereafter (mine were every 6 months) my interest rate will never be increased or decreased by more than 1 percentage point.....my interest rate will never be more than 6 percentage points greater than the initial rate and my interest rate will never decrease below x.x percent..."
SO, the math.
Say your interest rate is based on the WSJ published prime rate (now 3.25 percent, has been so since December 2008) + a margin of .38 percent like mine was. Say your interest rate changes start on January 1, 2012 and they can change up to 3 percent at a time and then only 1 percent every 6 months thereafter.
Say your interest rate is 8 percent.
On January 1, 2012 your interest rate will change to 5 percent (because it can only decrease by up to 3 percentage points at the first change date).
Then if the WSJ Prime Rate does not change (and it is not expected to until 2013 at the earliest and is not likely to change then)-
On June 1, 2012 your interest rate will change to 4 percent (because it can only decrease by up to 1 percentage point at every change date after the first change date).
Then again barring a change in the WSJ Prime Rate-
On January 1, 2013 your interest rate will change to 3.63 percent (because that is the minimum it can be, the Prime Rate + .38 percent).
Rate will stay at 3.63 percent until there is a change in the WSJ Prime rate.
This is just an example to show you how this works and how to read your mortgage papers, anyone will have to change it to the correct indexes & rates to figure out actual numbers.