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What is an Adjustable-Rate
Mortgage?

The interest rate on an Adjustable-Rate Mortgage (ARM) change over time the life of the loan.

The interest rate on the mortgage adjusts with interest rates in the marketplace. Adjustable-Rate Mortgages offer a lower starting interest rate and therefore, a lower monthly payment. But the interest rate and the payment may increase as time goes on. ARMs are beneficial loans for a variety of situations. For home buyers who plan to stay in a home for a few years, can take advantage of the low introductory interest rate and then move out before the interest rate increases. At Hawk Mortgage Group, we’ll find the best rate for your needs. We will advise and consult you on the path that will lead to your goals.

An Adjustable-Rate Mortgage Is Your Best Choice

Advantages of Adjustable-Rate Mortgages

Components of Adjustable-Rate Mortgages

To understand an ARM, you must have a working knowledge of its components. Those components are:

Index

A financial indicator that rises and falls, based primarily on economic fluctuations. It is usually an indicator and is therefore the basis of all future interest adjustments on the loan. Mortgage lenders currently use a variety of indexes.

Margin

A lender's loan cost plus profit. The margin is added to the index to determine the interest rate because the index is the cost of funds and the margin is the lender's cost of doing business plus profit.

Initial Interest

The rate during the initial period of the loan, which is sometimes lower than the note rate. This initial interest may be a teaser rate, an unusually low rate to entice buyers and allow them to more readily qualify for the loan.

Note Rate

The actual interest rate charged for a particular loan program.

Adjustment Period

The interval at which the interest is scheduled to change during the life of the loan (e.g. annually).

Interest Rate Caps

Limit placed on the up-and-down movement of the interest rate, specified per period adjustment and lifetime adjustment (e.g. a cap of 2 and 6 means 2% interest increase maximum per adjustment with a 6% interest increase maximum over the life of the loan).

Negative Amortization

Occurs when a payment is insufficient to cover the interest on a loan. The shortfall amount is added back onto the principal balance.

Convertibility

The option to change from an ARM to a fixed-rate loan. A conversion fee may be charged.

Carryover

Interest rate increases in excess of the amount allowed by the caps that can be applied at later interest rate adjustments (a component that most newer ARMs are deleting).

A mortgage is not simply a debt, but a tool. We here at Hawk Mortgage have many more options than what our parents had it is really worth working with a mortgage planner (versus just an “order-taker” loan officer) and reviewing how proper mortgage planning can affect your net worth. Homes were made to store families; investments were made to store cash! This is a rewarding task that our team at Hawk Mortgage will help you with as your home lender for life.