What is the “start rate” on an ARM?
A. As if the procedure of determining the indexed rate were not complicated enough, there are other factors which can result in a different rate than that derived from the above-described formula. It is not uncommon for ARMs to have a start rate or beginning interest rate that is considerably less than the fully indexed rate. For example, the note which had a fully indexed rate of 9.77% might have a start rate of 6.250%, far below the fully indexed rate.
A. As if the procedure of determining the indexed rate were not complicated enough, there are other factors which can result in a different rate than that derived from the above-described formula. It is not uncommon for ARMs to have a start rate or beginning interest rate that is considerably less than the fully indexed rate. For example, the note which had a fully indexed rate of 9.77% might have a start rate of 6.250%, far below the fully indexed rate. Q. What are “caps”? A. The amount by which the interest rate charged on an ARM can change from one change date to the next (or over the entire life of the loan) is typically limited by what are called “caps”. There are “per change caps” and “lifetime caps”. The “per change cap” limits the amount by which the interest rate can be increased or decreased from one change date to the next. Thus, in our example, if an ARM has a “per change cap” of 2 and adjusted annually, the new interest rate on the first change date would be 8.25%, even th
