How to Determine the Margin of ARM

Most ARM mortgage rates reset once a year.

In a typical adjustable rate mortgage, or ARM, the interest rate is reset once a year. The new rate is based on an index rate with a margin rate added to the index. The monthly mortgage payment for the next 12 months is then calculated using the new interest rate. A homeowner with an ARM loan should know how the rate is calculated each year and check to make sure the mortgage company correctly calculated the new rate.

Things You'll Need

• ARM loan contract

Instructions

1. Read the first page of your ARM contract and write down the index rate on which your rate is based, the rate reset date each year and the contract margin rate.

2. Write down the current interest rate on your ARM loan. Your monthly statement lists the rate at which you're currently making payments.

3. Look up the level of your loan's index rate for the month of the last rate reset. The HSH.com website provides historical data for the most widely used ARM index rates. For example, if your loan is indexed to the one-year constant Maturity Treasury and the loan rate reset in June 2011, the index was at 0.18 percent.

4. Subtract the index rate from the current interest rate of your ARM. The result is your ARM margin. Using the one-year Treasury rate, if your mortgage rate is currently 3.2 percent, the margin on your loan is 3.2 minus 0.18, which equals approximately 3 percent. This margin rate should match the margin rate printed in your mortgage contract.

5. Check the new interest rate on your monthly statement the month after your ARM rate resets. The margin should remain the same when added to the index rate. Contact the mortgage company if your ARM rate was calculated incorrectly.

Tips & Warnings

• When the ARM rate resets, the mortgage company typically rounds the rate up to the nearest 10th or eighth of a percent.

• When an ARM resets, the new payment is calculated using the new interest rate, the current loan balance and the remaining years in the term of the mortgage.

References

• HSH.com: Your ARM's New Interest Rate --- How to Check Your Lender's Calculation

Resources

• HSH.com: ARM Index Rates --- Libor Rates, Prime Rate and Other Leading Interest Rate Indexes