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Adjustable Rate Mortgage.
An Adjustable Rate Mortgage (ARM) is any loan in which the interest rate does not stay consistent for the life of the loan. Adjustable Rate Mortgages are available in several adjustment periods. The most common are:
• 1 month
• 6 month
• 1 year
• 3 year
• 5 year
• 7 year
• 10 year
Often time´s buyers hear terms like 5/1 ARM. What this terminology means is that the interest rate is fixed for the first 5 years of the loan and then adjusts each year thereafter. All Adjustable Rate Mortgages are tied to an index and have a margin. By adding the differential between the index at the beginning of the loan and index at the adjustment time with the margin the new interest rate is calculated. Currently most Adjustable Rate Mortgages are tied to one of the following index:
• 10 year Treasury Notes
• The Cost of Funds
• LIBOR
All mortgages of this type have what is known as a cap. The cap is the maximum amount that the interest rate can fluctuate in any one adjustment period and there is also a lifetime cap which is the maximum amount that the interest rate can fluctuate over the life of the loan.
There are four important questions to obtain answers to when investigating to see if an Adjustable Rate Mortgage is right for you.
• What is the cap in each adjustment period and the life of the loan cap?
• What is the margin for this loan?
• How often does the interest rate adjust?
• What index is this particular loan tied to?
For more information on Adjustable Rate Mortgages or to investigate which mortgage program best fits your needs fill out the form below and one of our loan officers will assist you.
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