Adjustable Rate Mortgages’, aka ARMs, monthly payments can move up or down as per the fluctuations of interest rates and financial indexes. Most of the ARMs have an initial period of fixed rate where the interest and monthly payments remain the same and after the expiry of that fixed rate period, the interest rates begin to change at preset intervals. This can be monthly, yearly half-yearly or quarterly.
Advantages of ARMs
• The initial fixed rate period offers lower interest rate as compared to the Fixed-Rate Mortgages
• After the expiry of the initial fixed-rate period, the interest rate can fall even further, making the monthly payments even lower.
Disadvantages of ARMs
• After the end of the initial fixed-rate period, the interest rate can go up as well, making the monthly payments higher
• Interest rates and financial indexes are unpredictable. So, you never know how much you’re going to pay as interest in the future.
Indexes and Margins
After the expiry of the fixed rate period, the interest rates on ARMs begin to increase or decrease as per an index plus a set margin. Most of the ARMs are tied to one of the following three indexes:
• The maturity yield on one-year Treasury Bills
• The 11th District cost of funds index
• The London Interbank Offered Rate
Sky is Not the Limit! There are Caps on Interest Rates
The fluctuations of interest rates don’t mean that your monthly payments can skyrocket. There are certain caps on the interest rates that protect the interests of both the borrowers and the lenders. The types of caps levied on the Adjustable Rate Mortgage are:
• A periodic rate cap that governs how much the interest rate can change from one year to the next
• A lifetime cap that governs how much the rates can rise during the life of the loan
• A payment cap that limits the amount of monthly payments
For more info on Adjustable Rate Mortgages, feel free to call All Western Mortgage at 702-850-2790 or
Advantages of ARMs
• The initial fixed rate period offers lower interest rate as compared to the Fixed-Rate Mortgages
• After the expiry of the initial fixed-rate period, the interest rate can fall even further, making the monthly payments even lower.
Disadvantages of ARMs
• After the end of the initial fixed-rate period, the interest rate can go up as well, making the monthly payments higher
• Interest rates and financial indexes are unpredictable. So, you never know how much you’re going to pay as interest in the future.
Indexes and Margins
After the expiry of the fixed rate period, the interest rates on ARMs begin to increase or decrease as per an index plus a set margin. Most of the ARMs are tied to one of the following three indexes:
• The maturity yield on one-year Treasury Bills
• The 11th District cost of funds index
• The London Interbank Offered Rate
Sky is Not the Limit! There are Caps on Interest Rates
The fluctuations of interest rates don’t mean that your monthly payments can skyrocket. There are certain caps on the interest rates that protect the interests of both the borrowers and the lenders. The types of caps levied on the Adjustable Rate Mortgage are:
• A periodic rate cap that governs how much the interest rate can change from one year to the next
• A lifetime cap that governs how much the rates can rise during the life of the loan
• A payment cap that limits the amount of monthly payments
For more info on Adjustable Rate Mortgages, feel free to call All Western Mortgage at 702-850-2790 or
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