How is the interest rate calculated on an ARM loan?
Most ARM loans calculate the interest rate adjustment by adding a margin to the index. The index is a published rate such as the weekly one-year Treasury bill or the 11th Federal Reserve District cost of funds. Changes in the index may cause changes in your interest rate. The type of index to be used is determined at the time of application. The margin is a fixed value that is added to the index to calculate the new interest rate on your loan. This value is stated in your ARM note. The result of the calculation may or may not be rounded. This factor is also outlined and agreed to when your sign your ARM note.
