Depending on the loan you have selected, it can change monthly, every three months or six or twelve month increments. The rate changes, but depending on the loan selection the payment may or may not change. There are two basic kinds of adjustable loans. One will not have negative amortization and one has the potential for negative amortization, this means there is potential for the principle amount that is borrowed to go up instead of down. In all adjustable mortgage loans there is an index and a margin.
Lenders use several different indexes to base their mortgage loans on.
The index rate is taken with the predetermined margin, added together to get the new mortgage interest rate. On No Negative adjustable mortgage loans, the rate cannot exceed a certain percent in a given time frame even if the index and margin are higher. The negative adjustables usually have a low start rate. The borrower is given two choices of payments. Either the low start rate or the new interest rate which is the combination of the index and the margin.