find mortgage and refinancing information Akron Ohio


We would like to thank the local libraries, schools, and universities for recommending students to visit us when doing research on any of our information topics.
 Please check back frequently as new topics are added and current topics are updated daily.


Adjustable Rate Mortgage - How They Work?

How does an ARM work.

The borrowers interest rate is determined initially by the cost of money and the time the loan is made. Once the rate has been set, and it is tied to one of several widely recognized and published indexes , and future interest adjustments are based on the upward an downward movements of the index. An index is a statistical report that is generally reliable indicator of the approximate change in the cost of money.

At the time a loan is made, the index preferred by the lender is selected, and thereafter the loan interest rate to rise and fall with the rates reported by the index. Since the index is a reflection of the lenders cost of money, it is necessary to add a margin to the index to ensure sufficient income for administrative expenses and profit. Margin will usually vary from 2% to 3%. The index plus the margin equals the adjustable interest rate. It is the index rate that fluctuates during the term of the loan and the cause of the borrowers interest rate to increase and decrease, the lenders margin remains constant.

The index.

Most lenders try to use an index to is very responsive to economic fluctuations. Some of the indexes are Treasury Rates--CMT-MTA-COFI-CODI-COSI-LIBOR-Prime Rate.


The margin is the difference between the index rate and the interest charged to the borrower.


9.25% - current index rate

2.00% - margin


11.25% - mortgage interest rate (note rate)

Rate adjustment period.

The rate adjustment period refers to the intervals and which a borrowers interest rate is adjusted, example: six months, one year, for years and so on. After referring to the rates movement in the selected index, the lender will notify the borrower of any rate increase or decrease. Annual rate adjustments are most common.

Lenders used two different mechanisms to limit the magnitude off payment changes that occur with interest rate adjustments: Interest rate caps and payment caps

An interest rate cap.

Lenders, consumers are concerned with a phenomenon called payment shock. Payment shock results from increase in the borrowers monthly payments which, depending upon the amount and frequency of payment increases, as well as the borrowers income, may eliminate the borrower's ability to continue making mortgage payments.

Payment Caps. This is a limit on the amount or percentage that a payment may change at each adjustment. If this cap was 7.50% and your monthly payment was $800.00, the most your payment could increase would be $60.00 - to $860.00. At the next adjustment, the most your payment could increase would be $64.50 (7.50% of $860.00 - for a $924.50 payment this period).

Teaser rates.

When lenders discovered residential adjustable-rate mortgage instrument in late 1979, recognize an opportunity to increase earnings. As public acceptance of adjustable-rate mortgages grew, so did the competition for adjustable-rate mortgage loans. To compete, lenders lowered the first-year interest rates on the loans they offered and introduce borrowers to discounts and buy-downs. The low initial rate have subsequently been dumped teaser rates. Many lenders offered attractive teaser rates merely to enlarge their portfolio of adjustable-rate mortgages. But since most adjustable-rate mortgages where he got interest rate caps prior to 1984, there are many instances where initial interest rates were increased by five to six percent. Clearly a crisis was developing.

To protect borrowers from payment shock and perfect lenders from portfolio shock, lenders began imposing caps on their adjustable-rate mortgages.

Fannie Mae and Freddie Mac caps.

Both Fannie Mae and Freddie Mac have guidelines relating to adjustable-rate mortgages interest rate caps. There are many different adjustable-rate mortgage plans, but as a general guideline, most adjustable-rate mortgages purchase by Fannie Mae are limited to the rate increase often no more than 2% per year and 5% over the life of the loan. Freddie Mac rate adjustment guidelines limiting rate increase to 2% per year and 5% over the life of the loan.

Mortgage payment adjustment period. The mortgage payment adjustment period defines the intervals and reach a borrower's actual principal and interest payments are charged.

There are two ways the rate and payment adjustments can be handled:

The lender can adjust the rate periodically as called for in the loan agreement and then adjust to mortgage payment to reflect the rate change. The lender can adjust the rate of more frequently than the mortgage payment is adjusted. For example, the loan agreement may call for interest rate adjustments every six months but changes in mortgage payments every three years.

If a borrower's principal and interest payment remains constant over a three-year period by the loans interest rate has steadily increased or decreased during that time, than to little or too much interest will have been paid in the interim. When this happens, the difference is subtracted from or added to the loan balance. When unpaid interest is added to loan balance, it is called negative amortization.

Martin Lukac, represents, #1 Loans USA(, a finance web-company specializing in real estate/mortgage market. We specialize in daily updates, rate predictions, mortgage rates and more: [email protected]


Can You Refinance An ARM Loan?  Zing! Blog by Quicken Loans

Can You Refinance a Car Loan?  Kelley Blue Book

How Long Does It Take To Refinance A House?  Zing! Blog by Quicken Loans

used office furnishings-supplies-equipment-desks-cubicles-service-counters for sale in Akron Ohio   Die cast model cars for sale in Akron Ohio  
used cars for sale in Akron Ohio   unfurnished homes for rent in Akron Ohio

Click here to
OfficeJax free ad space available here

Find used office equipment in Ohio at www.OfficeJax.Has.It

Find the best fleamarkets at www.FleaMarketWorld.Has.It


Find electric powered vehicles at www.NoGas.Drives.It

Akron City directory

Free Automatic Link Exchange

Flea Market World

Find homes for rent
in Akron Ohio

iphone-4-less below wholesale prices


Place your AD here. Click here for more details.

Click above to place your AD here

[Back to Top]

Ohio RealEstate

auction news and listings for Akron, Ohio

Akron crafts and hobby news center

best home remedies and do it yourself tips

Akron currency trading

Akron Ohio pet news

Advertising and promotions Akron, Ohio

The Akron blogging news center

Akron Ohio web site design news

Akron Mortgaging and refinancing

Web site design tips



© 2012 - 2023 All Rights Reserved
Increase pagerank with HitsSurfer

free page rank checker and seo evaluation tools 

first second ARM compare rates find the best rates current in your area lenders read reviews calculator adjustable rate loan home lenders brokers quotes florida houston gmac washington interest only 2nd software debt consolidation reverse senior equity texas maryland options lending bad credit  option one ameriquest chase first banks emc residential california miami dallas est branch marketing home company commercial yahoo online bad credit low credit no credit