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logo
  • Home
  • Loan Programs
  • Conventional Loans
  • 5% Down Jumbo Loans
  • FHA Loans
  • USDA Loans
  • VA Loans
  • Self Employed loans (Alternate Documentation)
  • Investor Cash Flow DSCR Program
  • Investor Cash flow worksheet (DSCR)
  • Short Term Rental Loans (Air BNB / VRBO)
  • Foreign National Loans
  • Commercial Loans
  • Apply Now
  • Resources
  • Mortgage Basics
  • Online Forms
  • Mortgage Calculators
  • Loan Process
  • Credit Card Builder
  • Blog
  • Careers
  • Why Join Coast2Coast Mortgage?
  • Loan Officer New Hire Referral Program
  • Apply for a Loan Originator Position
  • Career Opportunities
  • Loan Officer Dashboard
  • Pricing Engine
  • WeMLO Processing
  • Marketing Toolbox
  • Listing Booster
  • Go Paperless Credit Authorizations
  • Zoom Meetings
  • G-Suite Learning Center
  • Employee Portal
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  • Locations
  • 1-888-456-9796

Components of Adjustable Rate Mortgages

To understand an ARM, you must have a working knowledge of its components. Those components are:

Index: A financial indicator that rises and falls, based primarily on economic fluctuations. It is usually an indicator and is therefore the basis of all future interest adjustments on the loan. Mortgage lenders currently use a variety of indexes.

Margin: A lender's loan cost plus profit. The margin is added to the index to determine the interest rate because the index is the cost of funds and the margin is the lender's cost of doing business plus profit.

Initial Interest: The rate during the initial period of the loan, which is sometimes lower than the note rate. This initial interest may be a teaser rate, an unusually low rate to entice buyers and allow them to more readily qualify for the loan.

Note Rate: The actual interest rate charged for a particular loan program.

Adjustment Period: The interval at which the interest is scheduled to change during the life of the loan (e.g. annually).

Interest Rate Caps: Limit placed on the up-and-down movement of the interest rate, specified per period adjustment and lifetime adjustment (e.g. a cap of 2 and 6 means 2% interest increase maximum per adjustment with a 6% interest increase maximum over the life of the loan).

Negative Amortization: Occurs when a payment is insufficient to cover the interest on a loan. The shortfall amount is added back onto the principal balance.

Convertibility: The option to change from an ARM to a fixed-rate loan. A conversion fee may be charged.

Carryover: Interest rate increases in excess of the amount allowed by the caps that can be applied at later interest rate adjustments (a component that most newer ARMs are deleting).

 

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Company NMLS: 376205
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These materials are not from HUD, FHA, the USDA, or the VA. These materials were not approved by any government agency. They are independent of any government agency. We are not in any way affiliated with any organization listed or referenced within this website, including HUD/FHA/USDA/VA. The inclusion of various education, information, web links, or materials are not an endorsement of the Sender or any of its employees or business partners.
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For information directly from the VA, visit http://www.benefits.va.gov/HOMELOANS/
For information directly from the USDA, visit http://www.usda.gov/wps/portal/usda/usdahome?navid=GRANTS_LOANS

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