Adjustable Rate Mortgages

Adjustable Rate Mortgages

Adjustable Rate Mortgages

What Is an Adjustable-Rate Mortgage (ARM)?

An adjustable-rate mortgage (ARM) is a type of mortgage in which the interest rate applied on the outstanding balance varies throughout the life of the loan. With an adjustable-rate mortgage, the initial interest rate is fixed for a period of time. After this initial period of time, the interest rate resets periodically, at yearly or even monthly intervals.

Indexes vs. Margins

At the close of the fixed-rate period, ARM interest rates increase or decrease based on an index plus a set margin. In most cases, mortgages are tied to one of three indexes: the maturity yield on one-year Treasury bills, the 11th District cost of funds index, or the London Interbank Offered Rate.

 Although the index rate can change, the margin stays the same. For example, if the index is 5% and the margin is 2%, the interest rate on the mortgage adjusts to 7%. However, if the index is at only 2% the next time the interest rate adjusts, the rate falls to 4%, based on the loan’s 2% margin.

Special Considerations

An ARM can be a smart financial choice for home buyers that are planning to pay off the loan in full within a specific amount of time or those who will not be financially hurt when the rate adjusts. In many cases, ARMs come with rate caps that limit how high the rate can be and/or how drastically the payments can change.

 Periodic rate caps limit how much the interest rate can change every year to the next, while lifetime rate caps set limits on how much the interest can increase over the life of the loan. Finally, there are payment caps that stipulate how much the monthly mortgage payment can increase. Payment caps detail increases in dollars rather than based on percentage points.

Adjustable Rate Mortgages: After the initial period your interest rate can change once every 6 month.

  • 3/6 ARM
        Fixed Rate for 3 Years, Adjustable Rate for the remaining 27 years
  • 5/6 ARM
       Fixed Rate for 5 Years, Adjustable Rate for the remaining 25 years
  • 7/6 ARM
      Fixed Rate for 7 Years, Adjustable Rate for the remaining 23 years
  • 10/6 ARM                                                                                                                                  Fixed Rate for 10 Years, Adjustable Rate for the remaining 20 years                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

Abdi Mohammadian NMLS# 356391

Licensed by The Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act. NMLS# 1141
MasonMac Corporate

Mason-McDuffie Mortgage Corporation

Office: (925) 785-7851

12647 Alcosta Blvd
Suite 300
San Ramon, CA 94583


Not a commitment to lend. Rates and terms subject to change without notice. Licensed by the California Department of Financial Protection and Innovation under the California Residential Mortgage Act No. 4130968; AL #22653; AR #32700; AZ #1015403; Colorado regulated by the Division of Real Estate; DE #019623; FL #MLD819; Georgia Residential Mortgage Licensee #20924; ID #MBL-5861; Kansas Licensed Mortgage Company #MC.0025601; KY: #MC701698; MD: #16927; Mississippi Licensed Mortgage Company Licensed by the Mississippi Department of Banking and Consumer Finance;Licensed by the Minnesota DOC #MN-MO-1141; Licensed by the NJ Department of Banking and Insurance; NC: L-152867; NV: #3681; OK: #ML012358; Licensed by the Oregon Division of Financial Regulation #ML-3808; PA: #37008; TN: #112513; Licensed by the Virginia State Corporation Commission #MC-5579, WV: #ML-31523/MB31759. NMLS #1141.