Welcome or Register

Quick Search


view all


Any

Any

No Min.

No Max.
Back to Table of Contents

Adjustable Rate Mortgages - The Basics

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:

  1. An index
  2. A margin
  3. Adjustment Period
  4. An interest rate cap
  5. An initial interest rate

The Index

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 Margin

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.

Back to Table of Contents

The Realty Experts Testimonials

"Michelle helped my husband and me through our home purchase in Sun City Lincoln Hills with total professional guidance and support.  She listened to our concerns and needs for this purchase and found us our perfect home.  Michelle, with the help of Nick, are the very best REAL ESTATE PROFESSIONALS we could ever have imagined finding.  We both are truly grateful for their friendship and our positive home buying experience." Bernard and Anne B.
"Our experience when selling our home was very pleasant.  Michelle was knowledgeable and well prepared and patient.  She was very much appreciated!" Bob and Carmelina
"You were really fantastic to work with and we wish you and your son only the best.  If you are ever in the Boise area, please come and visit."
 
Tom and Paulette M.
"Susan and I went out to have a celebratory dinner and over drinks we both agreed: You are the greatest!!"
 
Gary and Susan J.
"Michelle is extremely professional and well prepared. At my first meeting with Michelle to sell my Mother's home, she came prepared with marketing materials, information about herself, the current market conditions and details about my Mother's home. She provided advice as to how best sell this house and had all the trades people we would need to get everything done to sell the house for the best possible price. After the estate sale, she made all the arrangements with the trades people and the photographer before listing the house. The house was listed and that weekend, Michelle had a Open House on both Saturday and Sunday. 22 days later, we closed escrow!!! Michelle was a pleasure to work with. I will not hesitate to use Michelle for any future real estate needs nor to recommend her to anyone who may need a Realtor who really knows the Sun City Lincoln Hills real estate market."
 
Jerry and Kathryn R.
"I appreciated your professionalism and great timing in initiating the sale of my home.  It was an easier process than I expected, and am pleased with the outcome.  Thank you for your thoughtfulness." Beverly L.
"Michelle did a great job handling the sale of our home and purchase of another.  She was on top of all the details every step of the way including all the paperwork!!  Less stress for us, so appreciated! Ray and Arlene C.
"Michelle did a fantastic job in selling our mom’s Sun City home.  We live out of the area and were not able to be present during the sale process. Michelle has an extensive network of contacts who were available to provide all the services we needed.  All of them did a great job. As did Michelle. She sold the house on the first day.  Thank you Michelle".
 
Steve and Vivian C.
"Thank you for your level of professionalism that you showed during the sale of our home.  You are a beautiful person and your caring helpfulness will be remembered with great appreciation." Steve and Kathy P.
View All

MLS membershipREALTOR® certificationYahoo® Real Estate Classifieds

Real Estate Websites by iHOUSEweb iconiHOUSEweb | Admin Menu