Home Loans
How Will My Mortgage Rate Adjust?
(presented by www.refinance-refinance.net - mortgage lenders)
By Ben Afzal
Basics
Your interest rate on an adjustable rate mortgage is typically based on:
- an interest rate index
- plus a margin
The total of these two factors represents your interest rate. The interest rate index is usually based on a third party index that is publicly published. In this way there is a neutral third party that determines the possible change in the interest rate.
Interest rate indexes may include the:
- LIBOR index
- MTA index
- CODI index
- COSI index
Each of these indexes may behave differently. Many indexes are weighted averages of the past twelve month’s interest rates. In this way sudden changes in the interest rate take a while to substantially affect the index. The margin represents the lender’s profit. This is the amount above and beyond the index that they get to keep.
Interest Rate Adjustments
Your interest rate can adjust:
- with periodic caps
- maximum lifetime cap
- minimum cap
A periodic cap is the maximum change the interest rate can make for a certain period - such as a quarter of a year or a year. A maximum lifetime cap is the most the interest rate can rise to. This is to give the borrower some protection.
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