Adjustable Rate Mortgage
Example of How the Rate and Payment will Change after 5, 6, and 7 Years
The amortization schedule below shows how the interest rate and payment will adjust after the 5 year initial "fixed" period and the two following years.
Loan Type: 5/1 ARM - Index: 1 Year Treasury CMT
Original Loan Amount: $225,000
Initial Interest Rate: 3.00%
First Rate Adjustment Cap: 2.00%
Annual Rate Adjustment Cap: 1.00%
Maximum Interest Rate: 8.00%
1. As you can see in month 60 (5 years in), the loan makes it first adjustment. The cap for this adjustment is the lesser of 2% (the first adjustment cap) or the total of the 1 Year Treasury Yield (current at 2.71%) PLUS the margin of 2.250%, which totals 4.96% (rounded up to 5.00%).
2. So, the interest rate increased to 5.00% ( a 2.00% jump). With that increase the payment increased $219.98 per month.
3. At this point, the loan now adjusts ANNUALLY. So 12 months later the interest rate increase another 1.00% to 6.00%.
4. With this second increase the payment moved up another $115.75.
5. After another 12 months, we see increase another 1.00% to 7.00%.
6. Again, the month payment increased $117.34 per month.
7. During these three rate increases the interest rate more than doubled to 7.00%.
8. And, the monthly payment increased $453.07 per month.