The longer the initial period the higher the rate. The margin is what is added to the value of the Index at the time of adjustment. The term cap describes how much the rate can go up or down when it adjusts. This is more important for volatile indices. The life cap, or ceiling, is the highest interest rate that the loan can have during its entire life.
Some loans have negative amortization features.
Even though the interest rate might adjust after 3 months you may be able to keep the start payment for an entire year. Your loan balance will go up if you choose to make the minimal payment. Definition of Common Adjustable Rate Indices COFI or 11th District Cost of Funds. Monthly Weighted Average Cost of Funds for 11th District SAIF-Insured Institutions. This index, used primarily for ARMs with monthly interest rate adjustments, is calculated by the Federal Home Loan Bank of San Francisco.