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 Y
ear Treasury CMT 
Original Loan Amount:    $225,000
Initial Interest Rate:    3.00%
Margin:    2.250%
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.