An adjustable rate mortgage (ARM) has an interest rate that fluctuates periodically. This is in contrast to a fixed rate mortgage, which always has the same interest rate.
Every ARM has basic components:
An interest rate cap
An initial interest rate
An ARM’s interest rate is tied to one of many economic indices, some examples of which are the 1-year constant maturity Treasury security, the Cost of Funds Index, or the London Interbank Offered Rate. Different indices move at different rates so know the characteristics of the index used for your ARM.
The interest rate for your ARM will be calculated by adding a margin to the interest rate from the index. The margin is basically the markup charged by the lender that allows them to make a profit off of your loan, such as adding 2% to the index, where the 2% is the margin. The margin of your loan usually does not fluctuate.
The Adjustment Period
The Adjustment Period controls when and how often your interest rate changes. For example, if your ARM has an adjustment period of 1 year, your interest rate will be subject to change at the end of each year and your monthly mortgage payment will be recalculated to reflect this change.
The Interest Rate Cap
Interest rate caps are built into the loan to protect the borrower from drastic interest rate fluctuations. The caps limit how much the interest rate or monthly payment can change at the end of each adjustment period. An ARM can also have a cap for the life of the loan. For example, during the life of a loan, the interest rate can only be increased by 5%.
The Initial Interest Rate
The Initial Interest Rate is the interest rate that you start with at the beginning of your loan period. The length of time your loan stays at this rate is built into the loan. For example, you may stay at the initial interest rate for 1 year, 5 years, or another length of time depending on your specific mortgage. This type of ARM is generally referred to as a Hybrid ARM. The initial interest rate for an adjustable rate mortgage is generally lower than that of a fixed rate mortgage.
Dick Stanton Real Estate
5214 West Seneca Turnpike
P.O Box 515, Vernon, NY 13476
Phone: 315-829-2900, Fax: 315-829-4901
Email: DkStanRe@twcny.rr.com Owner-Principal Broker: Richard Stanton
Dick Stanton Real Estate
5214 West Seneca Turnpike, Vernon, NY 13476
Phone: 315-829-2900. Fax 315-829-4901
Principal Broker/Owner: Richard Stanton
We are Dick Stanton Real Estate in Vernon, New York and We are a 'Hands-on Realtor'. By that I mean... We believe in serving our clients by being courtesy, professional and knowledgeable. We work closely with You, and all who have a voice in the Real Estate World. They include other Realtors, Attorneys, Financial Institutions, Home Inspectors, Contractors, Appraisers, Surveyors, Code Officers, Well inspectors, Septic Inspectors, Radon Testers and Mitigation personnel. We work especially hard and closely for you. We are your personal contact, not a computer voice. We are proud of the work we do everyday by staying close to our clients and contacts. You have a real person to talk to and so do we. That's us, a 'Hands-on Realtor'. We are Dick Stanton Real Estate in Vernon, New York. I am Richard Stanton, The NYS Licensed Real Estate Principal Broker, Owner and Founder of Dick Stanton Real Estate with 30 years experience in the Real Estate World. Please feel free to contact us anytime.
Richard Stanton 315-264-1291 Mobile. 315-829-2900 Office. 315-829-4901 Fax. firstname.lastname@example.org. Email. Donald Stanton315-264-9369 Mobile. Mike McNaughton315-264-3081 Mobile. Maria Stanton 315-264-3727 Mobile. Sandra Stanton315-264-1293 Mobile. Thank you.