Adjustable Rate Mortgages

• The ARM's are usually based on the Libor or Treasure Rate. These rates are adjusted according to the published index rate. The margin (which is set by the lender) and the published rated are added together to arrive at the interest rate. The margin is a fixed rate. It is important to establish the margin before proceeding forward with your loan. Some lenders offer very low starting rates, however, the margin is set higher to establish the starting rate. On the adjustment period the margin and the published index rate are added together to establish your new rate.
• ARM: Some of the common arms are 3/1, 5/1, and 7/1. Arms are also available in a 10/1 and a 1 year arm. I would recommend comparing the different arms vs. a fixed rate.
  The first number indicates the number of years (or months) that the rate is fixed. The second number indicates the time period that the rate may adjust, after the fixed time period has expired.
  Example: 3/1: Fixed for 3 years and adjusts once a year over the life of the loan. These caps generally (but not always) will have an adjustment cap on any given year or month with a cap over the life of the loan.
  Interest Only Arms are also available in 1 month and 6 month increments.

Loan Amount	Fixed Rate	3/1 Arm	Interest Only
$150.000	5.625 % (APR 5.75 %)	4.75 % (APR 5.232 %)	3.75 % (APR 5.828 %)
Principle & Interest Monthly Payment	$863.96	$782.47	$468.75