What happens when my ARM starts to adjust?

Many consumers who are wary of adjustable rate mortgages (ARM) are afraid that once the fixed period is over (2, 3, or 5 yrs.), the interest rate on his or her loan will drastically increase. This, however, is rarely or never the case. The rate ARM loans adjust to after the fixed period is the fully indexed rate (FIR). It is determined by the sum of two factors: your index and your margin. The index is what determines if your rate and your monthly payment may go up slightly or down slightly. Most indexes are within the range of 2.00-5.00%, moving hundredths (0.01%) at a time. Your margin never changes it is a fixed number decided at the beginning of the loan and ranges between 1.00-3.00%. The margin is added to the index to determine your FIR. When taking an ARM mortgage it is important to know which index you are on and its history. In addition, the margin is usually predetermined but is some times negotiable. Some loans will adjust every year, or 6 months, while some adjust every month, it is important to know this as well. While no one can predict the future, examining the mortgage indexes during economic cycles has proven to be a good indicator of what your interest rate will do. Mortgage indexes usually move slower than the national inflation rate. Ideally, you'll want an ARM to stay fixed during the inflation and start adjusting during economic growth.

Read or listen to the Article "Rates are Rising, How High Will They Go?"