Adjustable-Rate Mortgages. An adjustable-rate mortgage is a loan on which the periodic contractual interest rate can change over the life of the loan. The rate is reset periodically to a fixed spread (called the margin) over a benchmark or reference rate.
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Note, each payment is calculated based on the Loan Rate
Shown above, the remaining balance due after amortization
and the remaining term=30-t
Lifetime Cap=5% over original loan rate
Periodic Cap=+/- 2%
Say the Initial Rate is set ay 6%--2.85% below fully-indexed rate.
From 9/16/07 Hartford Courant Rates Page
Freddie’s survey focuses exclusively on
conventional conforming mortgages and so
provides a lower estimate of ARM share
than you would find if you included jumbo
& subprime sectors
Is an ARM Right for You?
If you haven't considered an ARM before, you certainly should. The short checklist below will help you to determine if some form of ARM might be for you. Just check any that apply:
My job has required more than one transfer in the past ten years I bought / am buying a "starter home" I'm planning on having more children / occupants than my home has bedrooms I'm single, young and buying a condo or apartment I'm a potential retiree in the next ten years I think rates will fall in the next few years I have trouble qualifying for a fixed rate mortgage at today's rates I expect to move or expand my home within seven years I'm getting a jumbo mortgage I have elderly relatives whose care I may be responsible for soon
A checkmark on at least some of these questions indicates that you probably won't be holding a 30-year FRM for anywhere near 30 years. You may expand your home, move, refinance, retire and move or want more productive cash flow. All of these argue in favor of some form of ARM.