Adjustable Rate Mortgages
Also known as an "ARM" Loan... Here are the basics about it!
An ARM is a mortgage with an interest rate that may vary over the term of the loan — usually in response to changes in the prime rate or Treasury Bill rate. The purpose of the interest rate adjustment is primarily to bring the interest rate on the mortgage in line with market rates.
Mortgage holders are protected by a ceiling, or maximum interest rate, which can be reset annually. ARMs typically begin with more attractive rates than fixed rate mortgages — compensating the borrower for the risk of future interest rate fluctuations.
Choosing an ARM is a good idea when:
** Interest rates are going down
** You intend to keep your home less than 5 years
ARMs have the following distinguishing features:
** Index
** Margin
** Adjustment Frequency
** Initial Interest Rate
** Interest Rate Caps
** Convertibility
An adjustable rate mortgage’s interest rate increases and decreases based on publicly published ind
.ARMS are based on different indexes including:
**United States Treasury Bills (T-bills)
**The 11th District Cost of Funds Index (COFI)
**London Interbank Offering Rate Index (LIBOR)
**Certificate of Deposit Indexes (CODI)
**12-Month Treasury Average (MTA or MAT)
**Cost of Savings Index (COSI)
**Bank Prime Loan (Prime Rate)*Margin
Want to learn more to see if an ARM is right for you or if you’re ready to get rolling, you can star