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| Adjustable Rate Mortgages |
Here's some detailed information explaining how ARM's work.
Adjustment Period
With most ARMs, the interest rate and monthly payment are fixed for an initial
time period such as one year, three years, five years, or seven years. After
the initial fixed period, the interest rate can change every year. For example,
one of our most popular adjustable rate mortgages is a five-year ARM. The
interest rate will not change for the first five years (the initial adjustment
period) but can change every year after the first five years.
Index
Our ARM interest rate changes are tied to changes in an index rate. Using an
index to determine future rate adjustments provides you with assurance that
rate adjustments will be based on actual market conditions at the time of the
adjustment. The current value of most indices is published weekly in the Wall
Street Journal. If the index rate moves up so does your mortgage interest rate
and you will probably have to make a higher monthly payment. On the other hand,
if the index rate goes down your monthly payment may decrease.
Margin
To determine the interest rate on an ARM, we'll add a pre-disclosed amount to
the index called the "margin." If you're still shopping, comparing one lender's
margin to another's can be more important than comparing the initial interest
rate, since it will be used to calculate the interest rate you will pay in the
future.
Interest-Rate Caps
An interest-rate cap places a limit on the amount your interest rate can
increase or decrease. There are two types of caps:
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Periodic or adjustment caps, which limit the interest rate increase or decrease
from one adjustment period to the next.
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Overall or lifetime caps, which limit the interest rate increase over the life
of the loan.
As you can imagine, interest rate caps are very important since no one knows
what can happen in the future. All of the ARMs we offer have both adjustment
and lifetime caps. Please see each product description for full details.
Negative Amortization
"Negative Amortization" occurs when your monthly payment changes to an amount
less than the amount required to pay the interest due. If a loan has negative
amortization, you might end up owing more than you originally borrowed. None of
the ARMs we offer allow for negative amortization.
Prepayment Penalties
Some lenders may require you to pay special fees or penalties if you pay off
the ARM early. We never charge a penalty for prepayment.
Contact a Loan Officer
Selecting a mortgage may be the most important financial decision you will make
and you are entitled to all the information you need to make the right
decision. Don't hesitate to contact a Loan Officer if you have questions about
the features of our adjustable rate mortgages.
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