Question:

What is an ARM adjustment interval?

Answer:

The ARM adjustment interval is the time elapsing between each rate reset. ARM loans rate adjusts following a specified interval. Literally, the ARM rate could adjust every month - as many HELOCs often do. However, the most popular adjustment intervals are 6 months and 1 year.

What does it mean to have a short ARM adjustment interval?

It means that your rate will fluctuate more often. If rates are falling, shorter ARM adjustment intervals benefit the borrower as the monthly payment will go down, too. If market rates are going up, the ARM rates will adjust upwards more often and the borrower may be unhappy with this.

However, borrowers and lenders are sharing the rate risk with ARM loans and borrowers should be prepared for higher ARM payments.

However, ARM loans enjoy rate adjustment caps limiting the ARM rate adjustment on the reset date. The shorter the ARM adjustment interval, the lower the ARM adjustment cap. For example, a 6-month ARM adjustment interval will possibly have 1% rate adjustment cap. A 1-year ARM adjustment interval may be limited to 2% rate increase or decrease.

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Common misspellings: mortage and morgage