Adjustable Rate Mortgage
Loans (ARM)
As your mortgage loan provider, we
are here to outline all possible mortgage loan options available to you
and your family. As a borrower, it is important for you to have the
information you need in order to weigh the benefits against the possible
risk unique to each loan program. One type of loan for you to consider
is an ARM loan. How is an ARM loan different from a Fixed Rate loan?
ARM stands for Adjustable Rate Mortgage. The interest rate used to
figure the payment "adjusts" according to a specific financial index.
Therefore your loan payment loan payment may increase or decreased after
the loan is closed. By contrast, a fixed rate loan has an interest rate
that remains constant throughout the tern of the loan. How is an ARM
interest rate determined? Interest rates on ARM loans are usually based
on an "index" with the addition of a "margin".
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index
A number used to compute the interest rate for an adjustable-rate
mortgage (ARM). The index is generally a published number or
percentage, such as the average interest rate or yield on Treasury
bills. A margin is added to the index to determine the interest rate
that will be charged on the ARM. This interest rate is subject to any
caps that are associated with the mortgage.
margin
For an adjustable-rate mortgage (ARM), the amount that is added to the
index to establish the interest rate on each adjustment date, subject
to any limitations on the interest rate change.
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