What is payment adjustment interval and how big is it?
Answer:The payment adjustment interval (period) is a feature of adjustable rate mortgage loans (ARMs). There are two types of payment adjustment intervals for adjustable rate home loans:
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Some ARMs have a starting low fixed rate for some limited time initial payment adjustment interval. For example, hybrid ARMs may have a fixed lower rate for the first 1, 2, 3, 5, 7, or 10 years.
These are loans of the type 1/1 ARM, 2/1 ARM, 3/1 ARM, 5/1 ARM, 7/1 ARM, or 10/1 ARM. Or, 5/6 ARM and similar is also possible to find.
- All ARMs, including Hybrid ARM loans mentioned above, also have a recurring payment adjustment period, depending on what ARM index they are tied to. CMT, COFI, LIBO and MTA are some of the most common ARM indexes.
On a 3/1 ARM the starting payment adjustment interval is 3 years. The initial lower rate will hold for 3 years before it adjusts to the ARM index plus lender's margin. The subsequent payment adjustment interval is 1 year. On a 3/6 Hybrid ARM, the initial payment adjustment interval will hold for 3 years, and then payments will adjust every 6 months.
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