How to Calculate the Margin for an ARM Loan
ARM loans, or Adjustable Rate Mortgage loans, are home loans that have interest rates that can fluctuate with market conditions. These loans first became available to real estate speculators who were interested in holding multiple properties for a low outgo. However, as homeownership became more widespread, these products entered the general consumer market. Determining a margin on an ARM loan is very easy.
Other People Are Reading
Instructions
-
-
1
Research how an ARM loan works. Generally, ARM loans are fixed for a short period of time--usually between one and five years. After this period, the mortgage rate will adjust periodically--usually every month--based on the terms of the adjustable rate.
-
2
Collect your mortgage paperwork from your purchase or refinance. Pay special attention to the Mortgage Note. This document breaks down all the particulars of the mortgage rate, term, adjustable feature and expiration date. If your paperwork contains an Adjustable Rate Rider, too, find this as well.
-
-
3
Look at the adjustable rate portion of the Mortgage Note. It should contain four things: a margin, an index, a maximum rate and a minimum rate. The index is the variable rate which the mortgage is tied to. Common indexes include the LIBOR (London InterBank Offered Rate) and the Prime Rate. The maximum and minimum rates are the ceiling and floor for your mortgage rat --it can never go over or under these caps.
-
4
Find your margin. This number is set in stone for as long as you keep your loan. This will be clearly stated in the Mortgage Note. It is often a number much lower than typical mortgage rates (sometimes as low as one or two percent). No calculation is needed to find a Margin.
-
1
