Seven per cent, and it happened two weeks ago

Good morning. There is a line in a good many mortgage notes that reads like a serial number and is not one.

Three numbers, and each one is a ceiling. Two per cent at the first adjustment, two per cent at every adjustment after it, five per cent above the starting rate for the whole life of the loan. If you have an adjustable mortgage, those three figures decide the worst week you will ever have with it.

I am writing about them today because of what happened on Thursday.

One thing about that figure before anything else, because it is the kind of detail this letter exists for. The Freddie Mac survey is an average of the five days ending the day before publication, so Thursday's number describes last week rather than Thursday. Traders watching the daily market had seven per cent broken back on the tenth, after the inflation report. The headline is real and it is also two weeks late, which is worth knowing before anybody uses it to decide something.

The causes are the Federal Reserve raising its target on the sixteenth, oil, and a bond market absorbing a great deal of new borrowing. I have no forecast beyond that. What I can tell you is which pieces of your own paperwork answer to any of it, because the answer is written into each of them and most people have never looked.

An adjustable mortgage past its fixed period recalculates on a formula printed in the note: an index, plus a margin, held down by those three caps.

The margin was fixed the day you signed and never changes, commonly between two and a quarter and three per cent. The index moves with the market, and everything that happened last week reaches you through that one term.

Not the closing folder, not the statement. The note itself.

A loan that began at four and a half can reach nine and a half and stop there, whatever the market does after. That ceiling is on your note rather than in any letter you will ever be sent.

The one piece of good news here is the notice. Federal rules require your servicer to write to you before an adjustment takes effect, with the new rate and the new payment. The letter does come, and the only question is whether it gets opened.

A home equity line of credit is the other one, and it behaves differently in the way that matters most.

A HELOC is priced at the prime rate plus a margin, and prime follows the Federal Reserve. When the committee moved on the sixteenth, prime moved with it within days and every drawn balance repriced automatically: no adjustment date, no notice requirement in most states, no letter. The next statement arrives larger and that is the whole of the announcement.

Lifetime ceilings on these sit far higher than on a mortgage, often in the high teens, so the cap rarely saves anybody. The margin is the part worth knowing: it was the only piece ever open to negotiation and it is fixed for the life of the line.

There was no letter on Friday or Saturday, and none yesterday. I took a file on Thursday afternoon, a water loss in a rented duplex with two households involved and a landlord who is not answering, and it swallowed the weekend. I still take two or three of these a month because without them I would turn into somebody describing how the work used to be done. That is the trade, and last week the trade won.

Go and find your note. Not the closing folder, not the statement, the note itself, and read the three numbers on it. Whatever the market does between now and Christmas, that line is the only part of it you already own.