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Adjustable Rate Mortgages
Most residential mortgage programs are 15 year fixed rate mortgages or 30 year fixed rate mortgages. The most common mortgage loan program for FHA mortgages and Conventional mortgages are 15 year fixed rate mortgages and 30 year fixed rate mortgages. However, most portfolio loan mortgages are adjustable rate mortgages. I can help you personally, if you are located in the area and looking for mortgage calculator Florida (and Illinois too!), but this advice applies to everybody across the US!
So what are Adjustable Rate Mortgages?
Adjustable rate mortgages are mortgage loans that are fixed for a certain period and then it adjusts every year after the fixed rate period. For example, on a 7/1 ARM (adjustable rate mortgage), the mortgage loan is set at a fixed rate for the first 7 years. Then on the 8th year it adjusts and every year after that.
As an example, all of the California, Illinois, and Florida condotel mortgage loan programs I have to offer my condo hotel mortgage loan borrowers and non warrantable mortgage loan borrowers are only adjustable rate mortgages. The adjustable rate mortgages I have to offer are the 7/1 ARM, 5/1 ARM, and 3/1 ARM. With these adjustable rate mortgages, the lender sets a starter rate. Mortgage calculator Florida are located right here on my website, but the rates below with explain some more information to guide you to your new home.
ARM & Mortgage Calculator Florida: What are my rates?
Let’s take the starter mortgage interest rate of 5.25%. If we use the 7/1 ARM, the first 7 years, the mortgage interest starter rate will be 5.25%. The interest rate cannot go lower or higher than the 5.25% starter rate for the first 7 years. The principal and interest is calculated on a 30 year amortized schedule.
On the eight year and every year after that, it adjusts every year. The adjustment is based on the index and a fixed margin. The margin always remains constant throughout the term of the mortgage loan. The index will be based on which index the mortgage lender goes by and will be disclosed prior to you closing your loan. On Condotel mortgage loans and non warrantable condo mortgage loans, my lenders use the Cost Maturity Treasury index, also known as the CMT. Other popular and common index mortgage lenders use include the LIBOR and COFI.
Index on Adjustable Rate Mortgages
So if the Cost Maturity Treasury index is at 2.5 and the margin is at 3, the new rate on the 8th year will be set at 5.5%. Say on the 9th year the Cost Maturity Treasury index is at 2. The new mortgage rate on the 9th year will be the 2 Cost of Maturity Treasury index plus the 3 margin for a new mortgage rate of 5%. The 5% new 9th year mortgage rate is lower than the initial starter rate of 5.25%. Unfortunately, most lenders have a clause on the mortgage that the adjustment rate on adjustable rate mortgages cannot be lower than the start rate. In this case, the 5% new rate would be lower than the 5.25% starter rate so the interest rate on your 9th year will be 5.25%.
Jumbo Mortgages and Adjustable Rate Mortgages
A large percentage of Jumbo Mortgage Loans, especially super jumbo mortgage loans, are adjustable rate mortgages. Most super jumbo mortgage loans, jumbo loans of $3 million and higher, are adjustable rate mortgages.
If you have any questions on adjustable rate mortgages, please contact me here on my contact form and use the Mortgage calculator Florida on my website.
2015 Mortgage Blog Update
This mortgage blog on adjustable rate mortgages was last updated on May 5, 2015.