Adjustable Rate Mortgages (ARMs)

The changing loan.

Basic Features

They can affect your loan costs and future loan payments.

• Index
  
  The ARM interest rate you pay is tied to a national index. The two most common are the T-Bill Indexes: six-month, three-year or five-year treasury bonds, and the Cost of Funds Indexes (COFI). COFI loans are less volatile over time than loans based on T-Bills. A COFI loan is a safer loan, especially if rates are increasing. If you think rates will definitely go down, then you might consider a T-Bill loan.
  
  
• Initial Interest Rate
  
  Also called a "teaser rate," it lasts only until your first adjustment. Your lender may use this lower initial rate to determine how large a loan you qualify for.
  
  
• Margin
  
  Lenders add a few percentage points to the index rate, called the "margin." Your actual interest rate is the sum of the index rate plus the margin. The amount of the margin can differ from one lender to another, but it is usually constant over the life of the loan. In comparing ARMs, be sure to add the index and margin.
  
  
• Adjustment Period
  
  The interest rate and monthly payment will adjust periodically according to a fixed schedule. One-year ARMS adjust every year, while others change every three years, or five years.
  
  Example: On a 3/1 ARM, the initial rate lasts for 3 years and the interest rate adjusts annually.

Take a Look at Some Optional Features...

The adjustable rate loans have some other features you may like.

Page 7 of 13