• Skip to main content

PMG Funding

Just another WordPress site

(717) 735-2203

  • Home
  • Team
    • David Wolfe
    • Jessica Vieland
    • Josiah Groff
    • Joy Nottoli
  • Purchase
    • Adjustable Rate Mortgages
    • FHA Mortgages
    • No Closing Cost Mortgages
    • Fixed-Rate Loans
    • USDA Home Loans
    • VA Home Loans
    • Portfolio Loans
  • Education
    • Mortgage Glossary
    • Closing Costs
    • Credit Reports
    • Loan Application Document Checklist
    • Mortgage Insurance
    • Avoid Private Mortgage Insurance
    • Settlement-Closing Your Loan
  • Refinance
  • Private Money

Adjustable Rate Mortgages

Adjustable-Rate Mortgage (ARM): A mortgage loan that does not have a fixed interest rate. During the life of the loan the interest rate will change based on the index rate plus the margin, see the example below.  With most ARM loans, your monthly principal and interest payment can change.

Index: The published market index used to calculate the interest rate of an ARM at the time of origination or adjustment.   There are many Indexes which ARM loans may use.  Two popular examples are the Treasury and LIBOR rates.

Margin: The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Example:  Index 2.50% + Margin 2.25%  = 4.75% Adjusted Interest Rate

Adjustment Caps:  Many ARM loans have adjustment caps which limited the amount an interest rate may increase at the first adjustment, subsequent adjustments or over the life of the loan.  Please make sure you understand what the caps are for your ARM loan program.

Hybrid ARMs: Many ARM loans begin with a set time period of a fixed rate before the adjustments begin.  These are often called ‘hybrid’ ARMs.  A popular hybrid ARM is the 5/1 ARM.  With the loan the initial interest rate is fixed for 5 years, then it adjusts annually.  Other common hybrid ARM terms are 3/1, 7/1 and 10/1.  The first number indicates the number of years the initial fixed interest rate lasts.

Interest Only:  Some ARM loans also offer the ability to make interest-only payments for a limited time. Interest-only payments can significantly lower your monthly payment but the loan will ‘recast’ in the future with accelerated principal repayments.  Interest-only loans are not a good program for most consumers.​

Copyright © 2023 PMG Funding


1525 Oregon pike suite 2001, Lancaster PA 17601
717-735-2203
dwolfe@pmg-funding.com


Licensed by the PA Department of Banking. NMLS #100063


An Equal Housing Lender