Question:

How does the 1 month ARM (adjustable rate mortgage) work?

Answer:

The 1 month ARM (adjustable rate mortgage) is one of the popular ARM mortgages. The 1-month ARM rate will adjust every month - that is, the margin of your loan will be added to an ARM index (COFI, LIBOR, MTA, etc) to form your new rate. Pay attention, as the 1 month ARM may start with a teaser rate for a single month and then will begin to adjust - much sooner than other ARM products.

As all fancy ARM products, the 1 month adjustable rate mortgage sometimes is sold to borrowers who are not well informed about the features and risks of ARMs.

For example, with the 1-month ARM if you selected a minimum payment after the adjustment it may not cover the interest due on the loan, and negative amortization will occur. Once your ARM is recalculated in several years, you will have to make full principal and interest payments on a balance higher than what you started.

Watch Out With 1-Month ARMs

One month ARMs can be even more dangerous as their rate will reset every month. Read carefully what index you are tied to, the ARM caps that you have, what payment options are presented to you. Ask about negative amortization and prepayment penalties.

The 1 month ARM (adjustable rate mortgage) can be particularly detrimental to borrowers who are not at all educated about adjustable rate mortgage loans. While this type of a loan can be very convenient with commissioned business people who are aware of the volatile features of the loan, first-time homebuyers with low to average steady income are exposed to a great risk of default.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
Was this Mortgage QnA helpful?
Not at all
  • Currently 2.8/5 Stars
  • 1
  • 2
  • 3
  • 4
  • 5
Definitely
Add to this Answer

Mortgage QnA is not a common forum. We have special rules:

  • Post no questions here. To ask a question, click the Ask a Question link
  • We will not publish answers that include any form of advertising
  • Add your answer only if it will contrubute to the quality of this Mortgage QnA and help future readers
If you have trouble reading the code, click on the code itself to generate a new random code. Verification Code Above:
Bookmark and share this QnA: