Adjustment Periods, Indexes and Margins for ARMs
An adjustment period in an ARM (adjustable-rate mortgage) determines how often and when the interest rate on a mortgage loan can change. The initial period of the mortgage which can be anywhere from six months to ten years, is where the interest cannot change. However, after that period, most ARM interest rates change periodically.
The determining factor of how much the interest rate changes is based on the index and the margin. This is a published index, and there are quite a few indexes that are commonly used. Two of these indexes are the U.S. Constant Maturity Treasury (CMT) and the London Interbank Offered Rate (LIBOR). The current financial market condition is what reflects the indexes, where the percentage that can be added to the index is the margin. This causes the interest rate to either decrease or increase and changing the monthly payment. Check out Charlotte NC Home Mortgage for more information about details of mortgages.
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