1. The index to which your ARM rate is tied. 

On a rate adjustment date, the rate is set at the index plus
margin (5), subject to any caps (6,7,8).

2. The initial interest rate 

This is the interest rate that is always quoted on an ARM.

3. The period for which the initial interest rate holds 

This period ranges from a month to 10 years.

4. The rate adjustment period after the initial fixedrate
period is over 

On ARMs with initial rate periods of 1 year or longer, this
is almost always 1 year. On ARMs with initial rate periods
shorter than 1 year, the subsequent rate adjustment period is
almost always the same as the initial rate adjustment period.

5. The margin that is added to the index value on a rate
adjustment date to determine the new rate 

This generally ranges from 2 to 3%.

6. The rate adjustment cap limiting the size of the first
rate adjustment 

This generally ranges from 1 to 5%.

7. The rate adjustment cap limiting the size of subsequent
rate adjustments 

This generally ranges from 1 to 2%.

8. The maximum interest rate over the life of the loan 

This is usually 5 or 6 percentage points above the initial rate.

9. Points 
 Upfront charge expressed as a percent of the loan.

If the ARM allows negative amortization, you
should have the following additional information: 
10. The initial payment is calculated (select one):
a. At the initial interest rate.
b. At the initial interest rate but interest only.
c. At another interest rate (specify) 

On ARMs that allow negative amortization, the
initial payment is not necessarily calculated using the initial
interest rate.

11. The initial payment period 

On ARMs that allow negative amortization, the
period for which the initial payment holds is not necessarily
the same as the period for which the initial rate holds. On
monthly ARMs, the rate adjusts every month but the payment
adjusts every year.

12. The payment adjustment period after the initial period
ends 

It is usually but need not be the same as the
initial payment period.

13. The payment adjustment cap, if any 

Usually 7.5% per year, if there is one.

14. The negative amortization cap, if any 

On ARMs that allow negative amortization,
there is always a limit on how large the negative amortization
can get, or how long it can last. Some ARMs set a cap on the
loan balance as a percent of the original balance, usually 110%
or 115%.

15. The payment recast period, if any 

Another way of limiting negative amortization
is to require a periodic recast of the payment. A recast
recalculates the payment to make it fullyamortizing, using the
current loan balance, interest rate and period remaining to
term.
