A.r.m. loans
Unlike a fixed rate mortgage, an Adjustable Rate Loan’s (ARM) interest rate will change, often after a set amount of years of fixed payments. The payment may be low initially because it is based on a schedule that is 30 years long but the rate will change/adjust after “x” years. The most common adjustable rate terms are 3, 5, 7, or 10 years. After the fixed term is up, the interest rate will change on a yearly basis until it is completely paid off. Hence why they are called 5/1, 7/1 or 10/1 - they are fixed for 5 years and change every year thereafter.
After the term is up, the rate will change via an index (usually the treasury bill or the LIBOR) plus a margin that is set by the lender. The margin never changes but the index will go up or down with the LIBOR or treasury note. For example, if the index is 3% and the margin is 3%, the rate for that year would be 6%.
After the term is up, the rate will change via an index (usually the treasury bill or the LIBOR) plus a margin that is set by the lender. The margin never changes but the index will go up or down with the LIBOR or treasury note. For example, if the index is 3% and the margin is 3%, the rate for that year would be 6%.
