How does arm loan work?

Answer 1

ARM loans, or Adjustable Rate Mortgages start out for a number of years (usually 3, 5, 7 or more) with a fixed rate that does not change. Then, the rate will become variable and change every month, or every six or 12 months. The variable rate is based on a mortgage index like LIBOR, CMT, T-Bill or COFI, which are the most common, and a margin. The margin is added to the index, then usually rounded to the nearest 1/8th (one eighth) of a percentage point. All the rules on how the interest rate changes are written into an Adjustable Rate Mortgage Note or Adjustable Rate Rider.