Understand all the parts of the modern adjustable rate mortgage.

Understand all the parts of the modern adjustable rate mortgage.

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Understand all the parts of the modern adjustable rate mortgage.

Parts of the Modern Adjustable Rate Mortgage

  1. Life Cap: This is the ceiling that the note rate cannot exceed over the life of the loan.
  1. Index Rate: The rate to which the interest rate on an adjustable rate loan is tied.  One of the more popular indexes used is the One Year U.S. Treasury bill.
  1. Points and Costs: The amount of money they will charge you or add to the loan amount.  This is really just a way to increase the yield to the lending institution.
  1. Amortization: A period of time in which gradual repayment of debt occurs by means of systematic payments of principle and/or interest.  At the end of the time period, the balance is zero. 
  1. Convertibility Option: An option that allows you to convert to a pre-determined or market-fixed rate at a specified time.
  1. Pre-Payment Option: An option to pre-pay any portion or a pre-determined portion of the principal prior to its due date without penalty.
  1. Deferred Amortization: Increasing principal balances derived from the underpayment of interest.
  1. Payment Cap Option: The capping of a payment amount when interest rates have increased that it raises the payment amount above a pre-determined limit.
  1. Margin: The amount added to the index rate that represents the lender’s cost of doing business.
  1. Interest Rate Cap per Adjustment: The maximum amount a borrower’s interest rate may increase or decrease at time of adjustment.

Daniel Smrt

Realtor / Broker (9 years experience)Specialties: Buyer's Agent, Listing Agent, Foreclosure, Consulting I have been a Realtor since 2009, pretty much since the day that market declined. When most Realtors decided to hang up their License I saw opportunity to build a business. Because I built a business through one of the toughest Real Estate markets we have ever had, it has allowed me to become a much more knowledgeable Realtor. I know the meaning of taking take care of my clients whether Buying or Selling a home.While most Realtors are part-time , this is my career, this is how I take care of my family as a Husband and Father.

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