| This means, your loan would be higher today if it was adjusting, typically, 1-3% higher than the introductory rate. Calculating this is IMPORTANT for ARM buyers, since it helps you predict the future interest rate of your loan. Margin - This refers to the home improvement loan program profit margin above the value of the financial index. The bank seeks to make a profit above the costs of inflation. The index is a measure of the cost of funds as measured by inflation. Index - A home improvement loan program published financial index such as LIBOR (usually 1 month, 6 month or 12 month), 11th District Cost of Funds Index, MTA, etc. Start Rate - The home improvement loan program rate provided to purchasers of ARM loans for the initial fixed interest period. The difference between the "Start Rate" of an ARM and the rate of a fixed terms loan is that the "Start Rate". Period - This is the frequency of adjustments, the longer the rate remains fixed, the better the loan is for the borrower. Typically, the shorter this is the lower the rate, since home improvement loan program are more opportunities to adjust upwards. Floor - A clause that sets the minimum rate for the interest rate of an home improvement loan program loan. Most loans come with a Start Rate = Floor feature, but this is primarily for Non-Conforming (aka Sub-Prime or Program Lending) loan products. This prevents an ARM loan from ever adjusting lower. An "A Paper" loan typically has either no Floor or 2% below start. Initial Change Cap - ARM loans have a specified maximum first adjustment that is typically home improvement loan program than allowed on subsequent changes. Periodic Change Cap - The maximum interest rate adjustment home improvement loan program every subsequent periodic adjustment. Life Cap (Ceiling) - The maximum upwards adjustment of an ARM loan. Typically on first mortgages no more than 6% Crucial Information About Caps Loan caps provide payment protection against payment shock. Most First Mortgage loans |
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