How are the changes determined?
Every ARM loan is tied to a financial market index, such as CDs, T-Bills or LIBOR rates. Your rate is determined by adding an additional percentage (known as a margin) to that index’s rate. When the index rises or falls, your rate rises or falls with it. Is there a limit to how much interest I’ll be charged? Yes. It’s called a ceiling, or lifetime cap. This is a guarantee that your interest rate will never exceed a designated percentage. For instance, if your introductory rate was 5% and you have a lifetime rate cap of 6% (meaning that your interest rate can never increase more than 6% during the life of the loan) then your ceiling would be 11%.
Every ARM mortgage loan is tied to a financial mortgage market index, such as CDs, T-Bills or LIBOR rates. Your mortgage rate is determined by adding an additional percentage (known as a margin) to that index’s mortgage rate. When the index rises or falls, your mortgage rate rises or falls with it. Is there a limit to how much mortgage interest I’ll be charged? Yes. It’s called a ceiling, or lifetime mortgage cap. This is a guarantee that your mortgage interest rate will never exceed a designated percentage. For instance, if your introductory mortgage rate was 5% and you have a lifetime mortgage rate cap of 6% (meaning that your mortgage interest rate can never increase more than 6% during the life of the mortgage loan) then your mortgage ceiling would be 11%. What are the benefits of an ARM? • With a lower initial mortgage interest rate (usually 2% to 3% lower than fixed-rate mortgages), qualifying is easier and the mortgage payments are more manageable at first. • You may qualify for
