Most Commons Questions About Adjustable Rates

1. What will be my initial interest rate?
   The initial rate will be based on the cost of money when the loan is made.
    
2. How often will my interest rate change?
   Depending on the lender's preference, adjustments will occur every six months, annually, every three years, or every five years. Six-month and one-year intervals are most common.
    
3. How often will my payment change?
   You have to be familiar with the policies of local lenders. Most lenders prefer simultaneous rate and payment changes.
    
4. Is there any limit how much any interest rate can be increased?
   Most ARMs (Adjustable Rate Mortgage) have interest rate caps. The most common life of the loan caps are the 5% & 6% required by Freddie Mac and Fannie Mae. Annual caps are usually between 1% and 2%.
    
5. Is there any limit to how much my payment can increase at any one time?
   Some ARMs have payment caps, while others keep payment hikes under control with interest rate caps. When there is a payment cap, payment increases are usually limited to 7.5% of the payment amount per year.
    
6. Will my ARM involve negative amortization?
   Most new ARMs do not allow negative amortization. It is possibility with some older ARMs (which a buyer might consider assuming). When negative amortization is a possibility, the loan should have a negative amortization cap.
    
7. Can my ARM be converted to a fixed-rate loan?
   Most ARMs now contain a conversion option that permits the borrower to convert to a fixed-rate loan at certain points in the loan term, for a fee. The fixed rate will be the market interest rate at the time of conversion.

For more specific questions about ARMs contact your lender.