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Overview:
The original adjustable rate. This is a 30 year loan in which the rate (and
therefore your monthly payment) changes every 12 months on the anniversary of your loan.
The amount of the rate change (referred to as an Adjustment), is determined by a
mathematical formula based on the U.S. bond market (most typically the yield on the 1 Year
U.S. Treasury Bill). Your lender does not control this number, so it is safe to assume
that your adjustment will be fairly determined (though you should always verify your new
rate by comparing with published numbers). This loan is considered quite risky since your
payment may change significantly from year to year. In exchange for taking this risk, the
borrower is rewarded with an initial rate that is significantly below market rates for 30
Year Fixed Rate Mortgages. Even after the loan adjusts, your new rates will typically be
below those rates being offered to new borrowers for the 30 Year Fixed Rate program. In
periods of rising interest rates, it is very possible that you will ultimately pay much
more for a 1 Year Adjustable than a 30 Year Fixed Rate Mortgage.
Is It For You?
This loan is right for you if you need to qualify for the largest loan possible
using your current income and you are confident that your income will increase
significantly in the short term to cover any anticipated increases in rates over the next
few years. Although this loan comes with adjustment rate caps (usually 2% limit per
adjustment and 6% over the lifetime of your loan), you should assume that your first
adjustment will generally result in an increase in your interest rate.
Caps
2% yearly / 6% life of loan
Margin
2.75%
Index
1 Year T-Bill |
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