Interest Rate Caps are Important

Many borrowers overlook the importance of their interest rate caps. The interest rate caps are the maximum amount that the interest rate can change during the specified adjustment period. For hybrid loans whose rate is fixed for a number of months, the cap on the first adjustment is typically larger than the cap on subsequent adjustments.

In this example, the interest rate is fixed at 7.5% for two years. To illustrate the importance of the interest rate caps we'll examine the worst case scenario where in the 2nd month the index rate increases to the maximum interest rate for the loan and stays there for the duration of the mortgage.

Use the adjustable rate mortgage calculator to see how your interest rate, payment, and principal balance on your ARM can change.

Adjustable Rate Calculator
Note that the amortization schedule shows that at the beginning of the third year the interest rate will jump to the first adjustment maximum rate of 9.5% since the index rate plus the margin would be 18% which exceeds the starting interest rate of 7.5% plus the maximum increase of 2% allowed on the first adjustment. The rate will continue to increase 1%, the maximum for adjustments after the first one, every 6 months until it reaches the maximum rate allowed on the loan in the 49th month.
 Worst
MonthInterest
Rate
Index
Rate
Payment Interest Principal Balance
17.500%3.000%$1,398$1,250$148$199,852
27.500%13.500%$1,398$1,249$149$199,702
37.500%13.500%$1,398$1,248$150$199,552
47.500%13.500%$1,398$1,247$151$199,401
57.500%13.500%$1,398$1,246$152$199,249
67.500%13.500%$1,398$1,245$153$199,095
77.500%13.500%$1,398$1,244$154$198,941
87.500%13.500%$1,398$1,243$155$198,786
97.500%13.500%$1,398$1,242$156$198,630
107.500%13.500%$1,398$1,241$157$198,473
117.500%13.500%$1,398$1,240$158$198,315
127.500%13.500%$1,398$1,239$159$198,156
Year 1  $16,781$14,937$1,844 
137.500%13.500%$1,398$1,238$160$197,996
147.500%13.500%$1,398$1,237$161$197,835
157.500%13.500%$1,398$1,236$162$197,673
167.500%13.500%$1,398$1,235$163$197,510
177.500%13.500%$1,398$1,234$164$197,346
187.500%13.500%$1,398$1,233$165$197,181
197.500%13.500%$1,398$1,232$166$197,015
207.500%13.500%$1,398$1,231$167$196,848
217.500%13.500%$1,398$1,230$168$196,680
227.500%13.500%$1,398$1,229$169$196,511
237.500%13.500%$1,398$1,228$170$196,341
247.500%13.500%$1,398$1,227$171$196,170
Year 2  $16,781$14,794$1,987 
259.500%13.500%$1,671$1,553$118$196,051
269.500%13.500%$1,671$1,552$119$195,932
279.500%13.500%$1,671$1,551$120$195,812
289.500%13.500%$1,671$1,550$121$195,691
299.500%13.500%$1,671$1,549$122$195,569
309.500%13.500%$1,671$1,548$123$195,447
3110.500%13.500%$1,812$1,710$102$195,344
3210.500%13.500%$1,812$1,709$103$195,241
3310.500%13.500%$1,812$1,708$104$195,137
3410.500%13.500%$1,812$1,707$105$195,032
3510.500%13.500%$1,812$1,707$106$194,926
3610.500%13.500%$1,812$1,706$107$194,819
Year 3  $20,901$19,551$1,350 
3711.500%13.500%$1,956$1,867$89$194,730
3811.500%13.500%$1,956$1,866$90$194,641
3911.500%13.500%$1,956$1,865$91$194,550
4011.500%13.500%$1,956$1,864$92$194,458
4111.500%13.500%$1,956$1,864$92$194,366
4211.500%13.500%$1,956$1,863$93$194,272
4312.500%13.500%$2,102$2,024$78$194,195
4412.500%13.500%$2,102$2,023$79$194,116
4512.500%13.500%$2,102$2,022$80$194,036
4612.500%13.500%$2,102$2,021$80$193,956
4712.500%13.500%$2,102$2,020$81$193,875
4812.500%13.500%$2,102$2,020$82$193,793
Year 4  $24,345$23,319$1,026 
4913.500%13.500%$2,249$2,180$69$193,724
5013.500%13.500%$2,249$2,179$69$193,655
5113.500%13.500%$2,249$2,179$70$193,585
5213.500%13.500%$2,249$2,178$71$193,514
5313.500%13.500%$2,249$2,177$72$193,442
5413.500%13.500%$2,249$2,176$73$193,370
5513.500%13.500%$2,249$2,175$73$193,296
5613.500%13.500%$2,249$2,175$74$193,222
5713.500%13.500%$2,249$2,174$75$193,147
5813.500%13.500%$2,249$2,173$76$193,071
5913.500%13.500%$2,249$2,172$77$192,995
6013.500%13.500%$2,249$2,171$78$192,917
Year 5  $26,985$26,109$876 
6113.500%13.500%$2,249$2,170$78$192,839
6213.500%13.500%$2,249$2,169$79$192,759
6313.500%13.500%$2,249$2,169$80$192,679
6413.500%13.500%$2,249$2,168$81$192,598
6513.500%13.500%$2,249$2,167$82$192,516
6613.500%13.500%$2,249$2,166$83$192,433
6713.500%13.500%$2,249$2,165$84$192,349
6813.500%13.500%$2,249$2,164$85$192,265
6913.500%13.500%$2,249$2,163$86$192,179
7013.500%13.500%$2,249$2,162$87$192,092
7113.500%13.500%$2,249$2,161$88$192,004
7213.500%13.500%$2,249$2,160$89$191,916
Year 6  $26,985$25,983$1,002 
7313.500%13.500%$2,249$2,159$90$191,826
7413.500%13.500%$2,249$2,158$91$191,735
7513.500%13.500%$2,249$2,157$92$191,644
7613.500%13.500%$2,249$2,156$93$191,551
7713.500%13.500%$2,249$2,155$94$191,457
7813.500%13.500%$2,249$2,154$95$191,362
7913.500%13.500%$2,249$2,153$96$191,266
8013.500%13.500%$2,249$2,152$97$191,169
8113.500%13.500%$2,249$2,151$98$191,071
8213.500%13.500%$2,249$2,150$99$190,972
8313.500%13.500%$2,249$2,148$100$190,872
8413.500%13.500%$2,249$2,147$101$190,770
Year 7  $26,985$25,839$1,145 
8513.500%13.500%$2,249$2,146$103$190,668
8613.500%13.500%$2,249$2,145$104$190,564
8713.500%13.500%$2,249$2,144$105$190,459
8813.500%13.500%$2,249$2,143$106$190,353
8913.500%13.500%$2,249$2,141$107$190,246
9013.500%13.500%$2,249$2,140$108$190,137
9113.500%13.500%$2,249$2,139$110$190,027
9213.500%13.500%$2,249$2,138$111$189,917
9313.500%13.500%$2,249$2,137$112$189,804
9413.500%13.500%$2,249$2,135$113$189,691
9513.500%13.500%$2,249$2,134$115$189,576
9613.500%13.500%$2,249$2,133$116$189,460
Year 8  $26,985$25,675$1,310 
9713.500%13.500%$2,249$2,131$117$189,343
9813.500%13.500%$2,249$2,130$119$189,224
9913.500%13.500%$2,249$2,129$120$189,104
10013.500%13.500%$2,249$2,127$121$188,983
10113.500%13.500%$2,249$2,126$123$188,860
10213.500%13.500%$2,249$2,125$124$188,736
10313.500%13.500%$2,249$2,123$125$188,611
10413.500%13.500%$2,249$2,122$127$188,484
10513.500%13.500%$2,249$2,120$128$188,356
10613.500%13.500%$2,249$2,119$130$188,226
10713.500%13.500%$2,249$2,118$131$188,095
10813.500%13.500%$2,249$2,116$133$187,962
Year 9  $26,985$25,487$1,498 
10913.500%13.500%$2,249$2,115$134$187,828
11013.500%13.500%$2,249$2,113$136$187,692
11113.500%13.500%$2,249$2,112$137$187,555
11213.500%13.500%$2,249$2,110$139$187,416
11313.500%13.500%$2,249$2,108$140$187,276
11413.500%13.500%$2,249$2,107$142$187,134
11513.500%13.500%$2,249$2,105$143$186,990
11613.500%13.500%$2,249$2,104$145$186,845
11713.500%13.500%$2,249$2,102$147$186,699
11813.500%13.500%$2,249$2,100$148$186,550
11913.500%13.500%$2,249$2,099$150$186,400
12013.500%13.500%$2,249$2,097$152$186,248
Year 10  $26,985$25,271$1,713 
12113.500%13.500%$2,249$2,095$153$186,095
12213.500%13.500%$2,249$2,094$155$185,940
12313.500%13.500%$2,249$2,092$157$185,783
12413.500%13.500%$2,249$2,090$159$185,624
12513.500%13.500%$2,249$2,088$160$185,464
12613.500%13.500%$2,249$2,086$162$185,302
12713.500%13.500%$2,249$2,085$164$185,137
12813.500%13.500%$2,249$2,083$166$184,971
12913.500%13.500%$2,249$2,081$168$184,804
13013.500%13.500%$2,249$2,079$170$184,634
13113.500%13.500%$2,249$2,077$172$184,462
13213.500%13.500%$2,249$2,075$174$184,289
Year 11  $26,985$25,025$1,960 
13313.500%13.500%$2,249$2,073$175$184,113
13413.500%13.500%$2,249$2,071$177$183,936
13513.500%13.500%$2,249$2,069$179$183,756
13613.500%13.500%$2,249$2,067$181$183,575
13713.500%13.500%$2,249$2,065$184$183,391
13813.500%13.500%$2,249$2,063$186$183,206
13913.500%13.500%$2,249$2,061$188$183,018
14013.500%13.500%$2,249$2,059$190$182,828
14113.500%13.500%$2,249$2,057$192$182,636
14213.500%13.500%$2,249$2,055$194$182,442
14313.500%13.500%$2,249$2,052$196$182,246
14413.500%13.500%$2,249$2,050$198$182,048
Year 12  $26,985$24,744$2,241 
14513.500%13.500%$2,249$2,048$201$181,847
14613.500%13.500%$2,249$2,046$203$181,644
14713.500%13.500%$2,249$2,043$205$181,439
14813.500%13.500%$2,249$2,041$208$181,231
14913.500%13.500%$2,249$2,039$210$181,021
15013.500%13.500%$2,249$2,036$212$180,809
15113.500%13.500%$2,249$2,034$215$180,594
15213.500%13.500%$2,249$2,032$217$180,377
15313.500%13.500%$2,249$2,029$220$180,158
15413.500%13.500%$2,249$2,027$222$179,936
15513.500%13.500%$2,249$2,024$224$179,711
15613.500%13.500%$2,249$2,022$227$179,484
Year 13  $26,985$24,422$2,563 
15713.500%13.500%$2,249$2,019$230$179,255
15813.500%13.500%$2,249$2,017$232$179,023
15913.500%13.500%$2,249$2,014$235$178,788
16013.500%13.500%$2,249$2,011$237$178,551
16113.500%13.500%$2,249$2,009$240$178,311
16213.500%13.500%$2,249$2,006$243$178,068
16313.500%13.500%$2,249$2,003$245$177,822
16413.500%13.500%$2,249$2,000$248$177,574
16513.500%13.500%$2,249$1,998$251$177,323
16613.500%13.500%$2,249$1,995$254$177,069
16713.500%13.500%$2,249$1,992$257$176,813
16813.500%13.500%$2,249$1,989$260$176,553
Year 14  $26,985$24,053$2,931 
16913.500%13.500%$2,249$1,986$263$176,290
17013.500%13.500%$2,249$1,983$265$176,025
17113.500%13.500%$2,249$1,980$268$175,756
17213.500%13.500%$2,249$1,977$271$175,485
17313.500%13.500%$2,249$1,974$275$175,210
17413.500%13.500%$2,249$1,971$278$174,933
17513.500%13.500%$2,249$1,968$281$174,652
17613.500%13.500%$2,249$1,965$284$174,368
17713.500%13.500%$2,249$1,962$287$174,081
17813.500%13.500%$2,249$1,958$290$173,791
17913.500%13.500%$2,249$1,955$294$173,497
18013.500%13.500%$2,249$1,952$297$173,200
Year 15  $26,985$23,632$3,353 
18113.500%13.500%$2,249$1,948$300$172,900
18213.500%13.500%$2,249$1,945$304$172,596
18313.500%13.500%$2,249$1,942$307$172,289
18413.500%13.500%$2,249$1,938$310$171,979
18513.500%13.500%$2,249$1,935$314$171,665
18613.500%13.500%$2,249$1,931$318$171,347
18713.500%13.500%$2,249$1,928$321$171,026
18813.500%13.500%$2,249$1,924$325$170,702
18913.500%13.500%$2,249$1,920$328$170,373
19013.500%13.500%$2,249$1,917$332$170,041
19113.500%13.500%$2,249$1,913$336$169,706
19213.500%13.500%$2,249$1,909$340$169,366
Year 16  $26,985$23,151$3,834 
19313.500%13.500%$2,249$1,905$343$169,023
19413.500%13.500%$2,249$1,902$347$168,675
19513.500%13.500%$2,249$1,898$351$168,324
19613.500%13.500%$2,249$1,894$355$167,969
19713.500%13.500%$2,249$1,890$359$167,610
19813.500%13.500%$2,249$1,886$363$167,247
19913.500%13.500%$2,249$1,882$367$166,880
20013.500%13.500%$2,249$1,877$371$166,508
20113.500%13.500%$2,249$1,873$376$166,133
20213.500%13.500%$2,249$1,869$380$165,753
20313.500%13.500%$2,249$1,865$384$165,369
20413.500%13.500%$2,249$1,860$388$164,981
Year 17  $26,985$22,600$4,385 
20513.500%13.500%$2,249$1,856$393$164,588
20613.500%13.500%$2,249$1,852$397$164,191
20713.500%13.500%$2,249$1,847$402$163,789
20813.500%13.500%$2,249$1,843$406$163,383
20913.500%13.500%$2,249$1,838$411$162,972
21013.500%13.500%$2,249$1,833$415$162,557
21113.500%13.500%$2,249$1,829$420$162,137
21213.500%13.500%$2,249$1,824$425$161,713
21313.500%13.500%$2,249$1,819$429$161,283
21413.500%13.500%$2,249$1,814$434$160,849
21513.500%13.500%$2,249$1,810$439$160,410
21613.500%13.500%$2,249$1,805$444$159,965
Year 18  $26,985$21,970$5,015 
21713.500%13.500%$2,249$1,800$449$159,516
21813.500%13.500%$2,249$1,795$454$159,062
21913.500%13.500%$2,249$1,789$459$158,603
22013.500%13.500%$2,249$1,784$464$158,138
22113.500%13.500%$2,249$1,779$470$157,669
22213.500%13.500%$2,249$1,774$475$157,194
22313.500%13.500%$2,249$1,768$480$156,713
22413.500%13.500%$2,249$1,763$486$156,228
22513.500%13.500%$2,249$1,758$491$155,737
22613.500%13.500%$2,249$1,752$497$155,240
22713.500%13.500%$2,249$1,746$502$154,738
22813.500%13.500%$2,249$1,741$508$154,230
Year 19  $26,985$21,249$5,736 
22913.500%13.500%$2,249$1,735$514$153,716
23013.500%13.500%$2,249$1,729$519$153,196
23113.500%13.500%$2,249$1,723$525$152,671
23213.500%13.500%$2,249$1,718$531$152,140
23313.500%13.500%$2,249$1,712$537$151,603
23413.500%13.500%$2,249$1,706$543$151,060
23513.500%13.500%$2,249$1,699$549$150,510
23613.500%13.500%$2,249$1,693$556$149,955
23713.500%13.500%$2,249$1,687$562$149,393
23813.500%13.500%$2,249$1,681$568$148,825
23913.500%13.500%$2,249$1,674$574$148,251
24013.500%13.500%$2,249$1,668$581$147,670
Year 20  $26,985$20,425$6,560 
24113.500%13.500%$2,249$1,661$587$147,082
24213.500%13.500%$2,249$1,655$594$146,488
24313.500%13.500%$2,249$1,648$601$145,887
24413.500%13.500%$2,249$1,641$608$145,280
24513.500%13.500%$2,249$1,634$614$144,666
24613.500%13.500%$2,249$1,627$621$144,044
24713.500%13.500%$2,249$1,620$628$143,416
24813.500%13.500%$2,249$1,613$635$142,781
24913.500%13.500%$2,249$1,606$642$142,138
25013.500%13.500%$2,249$1,599$650$141,489
25113.500%13.500%$2,249$1,592$657$140,832
25213.500%13.500%$2,249$1,584$664$140,167
Year 21  $26,985$19,482$7,502 
25313.500%13.500%$2,249$1,577$672$139,495
25413.500%13.500%$2,249$1,569$679$138,816
25513.500%13.500%$2,249$1,562$687$138,129
25613.500%13.500%$2,249$1,554$695$137,434
25713.500%13.500%$2,249$1,546$703$136,731
25813.500%13.500%$2,249$1,538$711$136,021
25913.500%13.500%$2,249$1,530$718$135,302
26013.500%13.500%$2,249$1,522$727$134,576
26113.500%13.500%$2,249$1,514$735$133,841
26213.500%13.500%$2,249$1,506$743$133,098
26313.500%13.500%$2,249$1,497$751$132,347
26413.500%13.500%$2,249$1,489$760$131,587
Year 22  $26,985$18,405$8,580 
26513.500%13.500%$2,249$1,480$768$130,818
26613.500%13.500%$2,249$1,472$777$130,041
26713.500%13.500%$2,249$1,463$786$129,256
26813.500%13.500%$2,249$1,454$795$128,461
26913.500%13.500%$2,249$1,445$804$127,657
27013.500%13.500%$2,249$1,436$813$126,845
27113.500%13.500%$2,249$1,427$822$126,023
27213.500%13.500%$2,249$1,418$831$125,192
27313.500%13.500%$2,249$1,408$840$124,352
27413.500%13.500%$2,249$1,399$850$123,502
27513.500%13.500%$2,249$1,389$859$122,643
27613.500%13.500%$2,249$1,380$869$121,774
Year 23  $26,985$17,172$9,813 
27713.500%13.500%$2,249$1,370$879$120,895
27813.500%13.500%$2,249$1,360$889$120,006
27913.500%13.500%$2,249$1,350$899$119,108
28013.500%13.500%$2,249$1,340$909$118,199
28113.500%13.500%$2,249$1,330$919$117,280
28213.500%13.500%$2,249$1,319$929$116,350
28313.500%13.500%$2,249$1,309$940$115,411
28413.500%13.500%$2,249$1,298$950$114,460
28513.500%13.500%$2,249$1,288$961$113,499
28613.500%13.500%$2,249$1,277$972$112,527
28713.500%13.500%$2,249$1,266$983$111,545
28813.500%13.500%$2,249$1,255$994$110,551
Year 24  $26,985$15,762$11,223 
28913.500%13.500%$2,249$1,244$1,005$109,546
29013.500%13.500%$2,249$1,232$1,016$108,529
29113.500%13.500%$2,249$1,221$1,028$107,502
29213.500%13.500%$2,249$1,209$1,039$106,462
29313.500%13.500%$2,249$1,198$1,051$105,411
29413.500%13.500%$2,249$1,186$1,063$104,348
29513.500%13.500%$2,249$1,174$1,075$103,273
29613.500%13.500%$2,249$1,162$1,087$102,187
29713.500%13.500%$2,249$1,150$1,099$101,087
29813.500%13.500%$2,249$1,137$1,112$99,976
29913.500%13.500%$2,249$1,125$1,124$98,852
30013.500%13.500%$2,249$1,112$1,137$97,715
Year 25  $26,985$14,149$12,835 
30113.500%13.500%$2,249$1,099$1,149$96,566
30213.500%13.500%$2,249$1,086$1,162$95,403
30313.500%13.500%$2,249$1,073$1,175$94,228
30413.500%13.500%$2,249$1,060$1,189$93,039
30513.500%13.500%$2,249$1,047$1,202$91,837
30613.500%13.500%$2,249$1,033$1,216$90,622
30713.500%13.500%$2,249$1,019$1,229$89,392
30813.500%13.500%$2,249$1,006$1,243$88,149
30913.500%13.500%$2,249$992$1,257$86,892
31013.500%13.500%$2,249$978$1,271$85,621
31113.500%13.500%$2,249$963$1,286$84,336
31213.500%13.500%$2,249$949$1,300$83,036
Year 26  $26,985$12,305$14,680 
31313.500%13.500%$2,249$934$1,315$81,721
31413.500%13.500%$2,249$919$1,329$80,392
31513.500%13.500%$2,249$904$1,344$79,047
31613.500%13.500%$2,249$889$1,359$77,688
31713.500%13.500%$2,249$874$1,375$76,313
31813.500%13.500%$2,249$859$1,390$74,923
31913.500%13.500%$2,249$843$1,406$73,517
32013.500%13.500%$2,249$827$1,422$72,095
32113.500%13.500%$2,249$811$1,438$70,658
32213.500%13.500%$2,249$795$1,454$69,204
32313.500%13.500%$2,249$779$1,470$67,734
32413.500%13.500%$2,249$762$1,487$66,247
Year 27  $26,985$10,196$16,789 
32513.500%13.500%$2,249$745$1,503$64,743
32613.500%13.500%$2,249$728$1,520$63,223
32713.500%13.500%$2,249$711$1,537$61,686
32813.500%13.500%$2,249$694$1,555$60,131
32913.500%13.500%$2,249$676$1,572$58,559
33013.500%13.500%$2,249$659$1,590$56,969
33113.500%13.500%$2,249$641$1,608$55,361
33213.500%13.500%$2,249$623$1,626$53,735
33313.500%13.500%$2,249$605$1,644$52,091
33413.500%13.500%$2,249$586$1,663$50,428
33513.500%13.500%$2,249$567$1,681$48,746
33613.500%13.500%$2,249$548$1,700$47,046
Year 28  $26,985$7,784$19,201 
33713.500%13.500%$2,249$529$1,719$45,327
33813.500%13.500%$2,249$510$1,739$43,588
33913.500%13.500%$2,249$490$1,758$41,829
34013.500%13.500%$2,249$471$1,778$40,051
34113.500%13.500%$2,249$451$1,798$38,253
34213.500%13.500%$2,249$430$1,818$36,435
34313.500%13.500%$2,249$410$1,839$34,596
34413.500%13.500%$2,249$389$1,860$32,736
34513.500%13.500%$2,249$368$1,880$30,856
34613.500%13.500%$2,249$347$1,902$28,954
34713.500%13.500%$2,249$326$1,923$27,031
34813.500%13.500%$2,249$304$1,945$25,087
Year 29  $26,985$5,025$21,959 
34913.500%13.500%$2,249$282$1,967$23,120
35013.500%13.500%$2,249$260$1,989$21,131
35113.500%13.500%$2,249$238$2,011$19,120
35213.500%13.500%$2,249$215$2,034$17,087
35313.500%13.500%$2,249$192$2,057$15,030
35413.500%13.500%$2,249$169$2,080$12,951
35513.500%13.500%$2,249$146$2,103$10,848
35613.500%13.500%$2,249$122$2,127$8,721
35713.500%13.500%$2,249$98$2,151$6,570
35813.500%13.500%$2,249$74$2,175$4,395
35913.500%13.500%$2,249$49$2,199$2,196
36013.500%13.500%$2,221$25$2,196$0
Year 30  $26,957$1,870$25,087 
Grand
Total
    $780,388 $580,388 $200,000 

Mortgage Calculator - Help

Amortization Schedule
The amortization schedule show you how monthly principal and interest payment and principal balances change over the life of your loan.
Floor Rate
Floor rate is the minimum interest rate for an adjustable rate mortgage (ARM).
Index Rate
Rate Adjustment on ARMs are based on the index rate, the margin, the adjustment schedule, interest rate caps, and floor rate specified in your loan documents. Index rates change over time. They should be published and widely available. Common indexes used for setting mortgage rates have include the Prime Rate, Libor (London Interbank Offer Rate) and U.S. Treasury Rates.
Interest
The portion of your mortgage payment that is due to the interest rate being applied to the principal balance. The Total Interest for a mortgage is the sum of all interest paid over the life of a loan.
Interest Rate Adjustments
The interest rate changes on an adjustable rate mortage (ARM) during adjustment periods specified in your loan documents. Your interest rate may have a fixed period where it does not change followed by adjustements on a regularly scheduled basis. For example, the interest rate on a mortgage could be fixed for 2 years followed by adjustments every 6 months.
Interest Rate Caps
Limits how much your interest rate can be increased during each adjustment period for an ARM. The cap for the first adjustment period may be different than the cap on subsequent adjustments. There also may be a maximim overall cap on interest rate increases during the life of your loan.
Interest Rate Scenarios
To decide if an adjustable rate mortgage is right for you, you should how changes in interest rates will effect the mortgage. The adjustable rate mortgage calculator shows you how your payment changes in the best case where rates are set at the minimum for your mortgage, the worst case where rates are set at the maximum for your mortgage, and the stable case where rates remain constant for your mortgage.
Loan Amount
The initial principal balance or your mortgage at closing.
Margin
When an ARM adjusts the margin is added to the index rate to help determine your interest rate. Interest rate caps and the floor rate for your mortgage may limit how much your actual interest rate changes. The margin typically is fixed for the life of the loan. It should be clearly specified in your loan documents.
Payment Shock
Occurs when the required minimum payment for a mortgage increases significantly. This can occur on adjustable rate mortgage when interest rates rise sharply, on interest-only mortgages when the interest-only period ends, and on balloon mortgages when the balloon payment is due.
Principal
The portion of your mortgage payment that is used to pay down the current balance of your mortgage. The principal balance represents how much you owe on the mortgage.
Start Rate
The initial interest rate on an Adjustable Rate Mortgage.
Term
The amortization term is one of the key factors that determine your required mortgage payment. Your required mortgage payment for fully amortizing mortgages is the amount that would result in the mortgage being closest to being paid off by the end of the amortization term. Longer amortization terms result in lower required mortgage payments for fully amortizating mortgages, all other things being equal.