Your First Step to Education on Mortgage Financing, Real Estate Investing, Credit Repair and Debt Consolidation!
financial education image


 


Articles from Experts!

   Mortgage:

    - Refinance

    - Purchase

    - Loan Programs

    - 1st Time Home Buyer

    - Housing Tax Credits

    - FHA Financing

    - Down Payment Assistance

    - Loan Modification

   Real Estate:

    - Buying A Home

    - Selling A Home

    - Foreclosures

    - Investing

   Credit:

    - Credit Repair

    - Credit Cards

   Debt:

    - Debt Consolidation

    - Debt Negotiation

    - Bankruptcy

   Insurance:

    - Auto

    - Health

    - Home

    - Life

    - Long Term Care

   Automobiles:

    - Cars Buying & Selling

   Taxes:

    - Taxes

    - Energy Tax Credit

   General:

    - Technology Resources

    - Money

    - Go Green

    - Solar Solutions

    - Answers By EdGAR






Debt Negotiation Zone




Adjustable Rate Mortgage Terms

An Adjustable Rate Mortgage - ARM - has its interest rate adjust over time depending on financial market conditions at the time of the ARM's adjustment date. In the beginning of an ARM, there is a period of time where the interest rate is fixed. This period is called the fixed period.

Typically, adjustable rate mortgages - ARMs - have a lower introductory rate, (or teaser rate, intro rate etc.) or start rate during their fixed period than a comparable fixed rate mortgage. In some cases the intro rate can as much as 5.0% below the current market rate of a fixed loan.

NOTE: As a general guideline, the lower the start rate the shorter the time before the loan makes its first adjustment. The start rate is usually fixed from 1 month to as long as 10 years depending on the type of ARM you get.

ARM Terms And Features

Adjustment Period - The Adjustment Period of an ARM is the time between when an ARM adjusts. For example, if you have a 1 year ARM then you will have a 1 year adjustment period. This means that your ARM can only adjust 1 time every 12 months.

Index - The index of an ARM is the financial instrument that the loan is 'tied' to, or adjusted to. The most common indices, or, indexes are the 1-Year Treasury Security, 10-Year Treasure Bill, LIBOR (London Interbank Offered Rate), Prime, 6-Month Certificate of Deposit (CD), MTA or Monthly Treasury Average, and the 11th District Cost of Funds (COFI). Each of these indices move up or down based on conditions of the financial markets.

Margin - The margin is one of the most important aspects of ARMs because it is added to the index to determine the interest rate that you pay. When the margin added to the index the resulting interest rate is known as the fully indexed rate. As an example if the current index value is 5.50% and your loan has a margin of 2.5%, then your fully indexed rate is 8.00%.

Margins on loans range from 1.0% to 5.0% depending on the index and the amount financed in relation to the property value. A general rule of thumb is the higher loan to value the higher margin you will get. You may also find some lenders adjust your margin based on your credit score - higher score means a smaller margin.

Periodic Adjustment Caps - All adjustable rate loans carry perdiodic adjustment caps. The periodic cap limits the amount your interest rate can change from one adjustment to the next. Often the interest rate is limited to be able to change 1-2% either up or down from one adjustment to another. This prevents huge changes in payments, but still allows for the interest rate to change in the direction of financial market conditions at the time of the adjustment.

Payment Caps - Some loans have payment caps instead of interest rate caps. These loans reduce payment shock in a rising interest rate market, but can also lead to deferred interest or 'negative amortization'. These loans generally cap your annual payment increases to 7.5% of the previous payment.

Lifetime Caps - Almost all ARMs have a maximum interest rate or lifetime interest rate cap. The lifetime cap varies from company to company and loan to loan. Loans with low lifetime caps usually have higher margins, and the reverse is also true. Those loans that carry low margins often have higher lifetime caps.

Hopefully you now have a better understanding of the terms associated with adjustable rate mortgages. Remember, if your loan officer is trying to offer you an ARM and you do not understand something about the ARM make sure you ask. Your home is not worth the risk of overlooking something you do not understand.


Article by Dale Stouffer, Mortgage Broker. Dale has been a mortgage broker since 1996. This Article is designed to be of general interest and should not be considered accounting, legal, or tax advice. The specific information discussed may not apply to you. Before acting on any matter contained herein, you should consult with your personal attorney, tax adviser, or accountant.

Back to the Article List!

Supporting our dedication to provide Free Consumer Education, feel free to link
directly to this article (and others you find useful) right from your website!

Direct Link To This Article!


Here is a translation of the Federal Reserve's surprise rate policy statement.
Read More...


U.S. Bank plans to layoff more than 1,000 employees in Southern California during the second half of 2009, according to an analysis by MortgageDaily.com of Worker Adjustment and Retraining Notification filings. JPMorgan Chase & Co. and its subsidiaries laid off more than 400 California employees during the third quarter. Nearly 600 more California layoffs are planned by Chase during the fourth quarter.
Read More...


A New Jersey defense attorney has been named the central figure in a 14-count indictment with three others who are accused of racketeering, murder and $1.1 million in mortgage fraud.
Read More...

Mortgage rates have held fairly steady since the middle of last week.
Read More...


Don't give out personal data to a middleman, and make sure a dealer isn't sneaking in unwanted fees.
Read More...







Mortgage Rates
Compare Rates in
your area



Find A New Home Now!
Sell Your Home Fast!
PropertyNut.com!



Home  |  About Us  |  Contact Us  |  Privacy Statement  |  State Site Map  |  Mortgage Terms  |  PropertyNut Listings


Copyright © 1999 - | GetPreQualified.com, LLC. | All Rights Reserved.
GetPreQualified.com ® and Your First Step ® are registered trademarks of GetPreQualified.com LLC



the primary url for this site ( "GetPreQualified" ) is http://GetPreQualified.com



web counter






 Get Pre-Qualified to Buy

 Buy - Sell a Property

 Special Tools...


  - How To Buy A House

  - Get Free Credit Report

  - Settle My Debt

  - Fix My Credit

  - Establish Credit

  - Find Mortgage Company



  - Where To Find a Home

  - Sell My Home

  - Buy or Sell Real Estate

  - Make Buyer Market Offer



  - GPQ Blog

  - GPQ Forum

  - Mortgage Calculators

  - Find Services In Your City

  - Ask EdGAR Any Question

  - Books We Offer






 Special GPQ Quick Links!


  - 2nd Mortgage

  - Bad Credit Refinance

  - Check My Credit Score

  - Credit Repair Services

  - Debt Settlement Help

  - FHA Refinance

  - First Time Home

  - Free Credit Score Check

  - Home Loans

  - Loan Modification Program

  - Modification Of Mortgage

  - Mortgage Lenders

  - Mortgage Modification Help

  - Mortgage Rates

  - Pre Approval

  - Refinance House

  - Refinance Mortgage Rate



  - Avoid Foreclosure

  - Check Credit Score

  - Consolidate Debt

  - Debt Consolidation

  - Debt Settlement Services

  - FHA Refinance Loan

  - First Time Home Buyer Loans

  - Home Equity Loans

  - Home Mortgage

  - Loan Modifications

  - Mortgage Companies

  - Mortgage Loan Modifications

  - Mortgage Modification Program

  - Mortgage Refinancing

  - Pre Approve Mortgage

  - Refinance Mortgage Costs

  - Refinancing



  - Bad Credit Mortgage Refinance

  - Check My Credit Report

  - Credit Debt Settlement

  - Debt Settlement Companies

  - FHA Home Loans

  - FHA Streamline Refinance

  - Free Credit Report

  - Home Loan Modification

  - Loan Modification Mortgage

  - Loan Pre Qualify

  - Mortgage Interest Rates

  - Mortgage Modification Companies

  - Mortgage Modifications

  - No Down Payment

  - Refinance Home Mortgage

  - Refinance Mortgage Loans

  - Second Mortgage