As a rule the lower the start rate the shorter the time before the loan makes its first adjustment. Each of these indices move up or down based on conditions of the financial markets. The margin is one of the most important aspects of ARMs because it is added to the index to determine the interest rate that you pay. The margin added to the index is known as the fully indexed rate. CAPS All adjustable rate loans carry interim caps.
Many ARMs have interest rate caps of six-months or a year.
There are loans that have interest rate caps of three years. Interest rate caps are beneficial in rising interest rate markets, but can also keep your interest rate higher than the fully indexed rate if rates are falling rapidly. CAPS Some loans have payment caps instead of interest rate caps. The lifetime cap varies from lender to lender and loan to loan. Loans with low lifetime caps usually have higher margins, and the reverse is also true.