Question:

What info do I get with an adjustable rate mortgage (ARM) disclosure?

Answer:

With an adjustable rate mortgage (ARM) disclosure you'll learn how the elements of your ARM are determined, how is the interest rate and your monthly payment going to change, and some bad case scenario may be included, as well. For example, if you are looking at a 5/1 ARM for thirty years, your interest rate, principal and payments may very well start with a killing rate of 4.375%, which should be below the prime rate by all chance, and stay at this rate for a 5-year period.

In an ARM disclosure, you will get the chance to notice that you start with a discounted interest rate, and after a while, when the set period finishes, a change date will arrive - your discounted rate will have ended and rate will adjust to the prime plus a margin. The adjustable rate mortgage (ARM) disclosure will reveal the annual and lifetime cap of the loan. For example, the ARM rate cannot get 5 or 6 percent higher that the start rate, and can't adjust more than 1 or 2 percent within a year (that will be the annual cap).

The ARM disclosure sheet should state how many days before a rate change becomes current you are entitled to a notice of interest rate change. The disclosure of an adjustable rate mortgage should also cite an example of upward accelerating rate adjustment - how your payments will change if the rate reaches the lifetime cap as quickly as possible.

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