X

See what's happening with home values in more than 400 metropolitan areas with HSH's Home Value Tracker, just updated though the second quarter of 2022.

See what's happening with home values in more than 400 metropolitan areas with HSH's Home Value Tracker, just updated though the second quarter of 2022.

My ARM rate changed—how can I check my lender’s calculation?

Q: My ARM just came up for an interest rate adjustment. How can I check my mortgage lender's calculation?

A: Calculating your ARM's new interest rate isn't that difficult, but it can be confusing.

There are a variety of indexes which can be utilized, a number of ways of calculating and rounding of the interest rate and the effect of any limits on the rate change which come into play. Some common ARM indexes have daily, weekly, monthly and even "moving" calculated values.

Having the precise information for your loan is key. In the paperwork you signed when you got your mortgage, you should find a mortgage note and/or an Adjustable Rate rider. In one of them, the specific name of the index will be noted, as will the scheduled date of change for your rate, and importantly, the period of time before the rate change which will determine the index value used to change your rate.

For example, your rate may be scheduled to change on June 1. The contract specifies the name of the index and that a value of 45 days prior to June 1 will be used to set the rate (the advance period is to provide sufficient time to notify you of an impending rate change).

To this value, a "margin" is added, often 225 to 275 basis points. The sum of the value of the index plus the margin becomes your new interest rate...sort of. Usually, the sum of the two will be rounded to the nearest one-eighth or even one-quarter percentage point, and this will become your new rate... sort of.

The “sort of” in this case comes in to play depending upon any interest rate limits which may apply. A variety of "cap" structures are used for ARMs, but after any initial change, most have annual change limits of upward or downward by no more than two percentage points from whatever your rate was last year.

To do your calculation and check your lender's work, you should first read your mortgage contract; once you know the specifics of your loan, you can check index values at HSH.com-- and if you know your remaining loan balance, you can even calculate your payment for the next change with HSH.com’s mortgage calculator.

For more detail about reviewing your ARM's contract, you should check out our do-it-yourself guide mentioned in the 'recommended reading' section below.

Ask the expert
Keith Gumbinger
Keith Gumbinger
Mortgage Expert
Vice President, HSH.com
About Keith: Mortgage market observer and analyst with 35 years experience... (more)
Please enter a question.
Please enter name.
Please enter email.
Captcha code invalid
Q: How are mortgage interest rates determined?
AUG 18, 2022
A:

Mortgage rates fluctuate from day to day, depending on a number of factors related to the economy and to choices made by investors. While some mortgage money comes from deposits held by banks and credit unions, most of the funds for borrowers come from investors in capital markets.

Read More
Q: Will today's stock market influence tomorrow's mortgage rates?
AUG 16, 2022
A:

Mortgage rates are influenced by a variety of factors, rather than moving in lockstep with any one economic indicator. The stock market rises and falls for a wide variety of reasons, including global, economic and political issues, but as a broad rule of thumb, a rising stock market indicates optimism among investors about the economy.

Read More
Q: Should I pay private mortgage insurance out of pocket or finance the cost?
AUG 12, 2022
A:

For the most part, this is a discussion about time. You should compare the total costs of the difference in the two interest rates over your given time horizon.

Read More
Add to Homescreen?
X
X
Install this web app on your phone :tap and then Add to homescreen