| to trade equity for time, and in some markets, not as advantageously as today. Terminology Fully Indexed Rate - The price of first guarantee mortgage ARM as calculated by adding Index + Margin = Fully Indexed Rate. This is the interest rate your loan would be at without a Start Rate (the introductory special first guarantee mortgage for the initial fixed period). 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 first guarantee mortgage This refers to the banks 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 publicly published financial index such as LIBOR (usually 1 month, 6 month or 12 month), 11th District Cost of Funds first guarantee mortgage MTA, etc. Start Rate - The introductory rate provided to purchasers of ARM loans for the initial fixed interest period. The difference between the "Start Rate" of an first guarantee mortgage 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, first guarantee mortgage there are more opportunities to adjust upwards. Floor - A clause that sets the minimum rate for the interest rate of an ARM loan. Most loans come with a Start Rate = Floor feature, but this is primarily for Non-Conforming (aka Sub-Prime or Program Lending) first guarantee mortgage 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 |
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