FIXED RATE MORTGAGES
These programs are typically either on a 15 year or 30 year amortization or repayment schedule. These programs provide the most security in the sense that the required monthly principal and interest payments will not change for the life of the loan. This is because the interest rate is fixed for the entire life of the loan, thus it is called a 15 or 30 year fixed program.
ADJUSTABLE RATE MORTGAGES (ARMS)
All of our ARM programs are based on a 30 year amortization or repayment schedule. These loans are referred to as adjustable rate mortgages (ARM’s), because the interest rate will change or adjust on a predetermined schedule.
ARM’s have an initial fixed period that the interest rate will not change or adjust. After this initial period the interest rate will change or adjust based on a market index plus a margin.
The market index for ARMS may be an average one year treasury bill index as published in the Wall Street Journal. The margin is predetermined and is typically between 2.75% and 3%. So, if the one year treasury bill index is 5.5% and your margin is 2.75% on the date of your first adjustment, your new rate would be 8.25%.
There are limits to how much your interest rate can adjust in any given adjustment and over the life of your loan. A periodic rate cap, would limit the amount of any single adjustment and a lifetime rate cap limits the cumulative amount of any adjustments over the life of the loan.