Worksheet of ARM Features

ARM 1 ARM 2 ARM 3 ARM 4 ARM 5 Type of ARM           Initial Interest Rate           Most Recent Index Value           Margin           First Rate Adjustment Cap           Later Adjustment Caps           Maximum Interest Rate           Loan Term (Years)           Number of Years Interest Only           INSTRUCTIONS: Enter information for up to 5 ARMs. They could be 5 different types of ARMs, or 5 of the same type of ARM with different features, or any combination of the two.   Worksheet Explanations ARM Type: Each ARM type is described by two numbers. The first number indicates the length of the initial rate period, during which the ARM rate is fixed.  The second number indicates how often the rate is changed after the initial rate period ends.   1mo / 1mo: 2yr / 6mo: 5yr / 1yr: 7yr / 23yr: 3mo / 1mo: 3yr / 6mo: 5yr / 5yr: 10yr / 6mo: 6mo / 1mo: 3yr / 1yr: 5yr / 25yr: 10yr / 1yr: 6mo / 6mo: 3yr / 3yr: 7yr / 6mo:   1yr / 1yr: 5yr / 6mo: 7yr / 1yr:     Initial Interest Rate on ARM: This is the interest rate on the ARM that is fixed for the initial rate period.  Most Recent Value of the Interest Rate Index: You do this in two steps.   a. Identify the rate index used by the ARM: The list below covers 95% or more of all ARMs. A. Cost of Funds, Eleventh District (COFI) - Monthly B. 1-Year Treasury Constant Maturity Rate - Weekly C. 2-Year Treasury Constant Maturity Rate -Weekly D. 5-Year Treasury Constant Maturity Rate - Weekly E. 10-Year Treasury Constant Maturity Rate - Weekly F. MTA (a 12-month moving average of B) - Monthly G. 1-Month Libor - Weekly H. 3- Month Libor - Weekly I. 6-Month Libor - Weekly J. 1-Year Libor - Weekly K. Certificate of Deposit Index (CODI), a 12-month moving average of 3-month CD rates L. Bank Prime Loan Rate - Intermittent b. Find the most recent value: If it is a series published monthly you want the last monthly figure. If it is also published weekly, you want the last weekly figure. Some series are also available daily but we don't advise using daily figures.    BankRate.com has the most recent figures for all the series except K. K can be found at American Advantage Mortgage,Inc.   Margin: This is the amount that is added to the index value on a rate adjustment date to determine the new rate. The new rate equals index plus margin, subject to the adjustment caps and maximum rate indicated below.   First Rate Adjustment Cap: This is a limit on the size of any increase in rate at the first rate adjustment. These caps can range from 1%, which would be common on an ARM that adjusts after 6 months, to 5% on an ARM that doesn't adjust for 10 years.  Later Adjustment Caps: This is a limit on the size of any increase in rate at rate adjustments after the first adjustment. These caps are usually 1% or 2%. As an Illustration, a 7/1 ARM might have a cap of 5% on the first adjustment and 2% on all subsequent adjustments.   Maximum Interest Rate: This is the highest interest rate allowed on the ARM over its life. It is often set at 5% to 7% above the initial rate.  Loan Term: This is the period over which the mortgage payment is calculated. Most ARMs have a term of 30 years, but 15s are also available.  Years Interest-Only: If the ARM has an interest-only option, indicate the period. Copyright Jack Guttentag 2004

Jack Guttentag is Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania. Visit the Mortgage Professor's web site for more answers to commonly asked questions.

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