What are the features of Adjustable Rate Mortgage (ARM)?
The adjustable rate mortgage (ARM) is completely amortizing over the phase. The process involves fixed payments at certain times, and afterward payments are attuned yearly to repay the outstanding amount.
The following table will explain the most general terms for adjustable rate mortgage:
Common Adjustable Rate Mortgages
ARM Type Months Fixed
10/1 ARM Fixed for 120 months, and afterward yearly adjusts.
7/1 ARM Fixed for 84 months, and afterward yearly adjusts.
5/1 ARM Fixed for 60 months, and afterward yearly adjusts.
3/1 ARM Fixed for 36 months, and afterward yearly adjusts.
Mortgage amount — This indicates the value of the mortgage.
Opening interest rate — Yearly rate of interest agreed originally when you entered the contract.
Term in years — Total number of years required to repay the mortgage.
Existing index — Interest rate of the ARM as pointed out in the index. The concluding and completely indexed rate is found by the addition of this existing index rate and margin.
Margin — Percentage rate of interest above the margin or set index. This can be used to determine the Totally Indexed Rate.
Starting monthly payment — This indicates the entire amount of original principal and interest. This is determined by the multiplication of the opening interest rate and opening monthly payment.
Loan origination percent — Percentage rate that is charged to cover up the loan origination costs.
Discount points — Spending 1% of the loan amount can give you one discount point. Further, these points are tax deductible until operated as broker’s charge.
Other fees — This includes prepaid interest and additional charges that has not been incorporated so far.
Interest rate cap — It denotes the maximum limit for charging interest rate. It would be unfeasible if the real rate of interest will increase further than this rate.
Months prior to first adjustment — The number of months required to wait, prior to you initiate adjusting your mortgage payment. These are calculated as the months comprising of fixed rate of payments. Generally, the rate is attuned once in a year.
Anticipated adjustment — Your estimated change in the interest rate of the mortgage. The interest rate will be attuned with the opening interest rate.
Months between alterations — This includes the time between two successive mortgage adjustments. You can’t amend your mortgage payments further during this time.
Total payments — Total sum of monthly payments to completely pay off the loan. It is understood by the calculator that you will not make any premature payment of the principal amount.
Total interest — Total amount of money as interest cost. This calculator presumes that you will make all the payments as per the plan, no prepayment will be there.
