How to Determine the ARM Interest Rate
- 1). Contact your lender to determine the margin for your ARM. The riskier you are as a borrower, the higher the margin will be.
- 2). Contact your lender or check your loan documents to determine which interest rate index your ARM interest rate is tied to. The most common interest rate indexes for mortgages are the London Interbank Offered Rate, the 11th District Cost of Funds and the one-year constant-maturity treasury securities.
- 3). Contact your lender to determine when your ARM adjusts the interest rate. ARMs change interest rates on a set schedule, often once per year, rather than each time the index rate changes.
- 4). Look up the interest rate of the index your ARM is tied to when your rate is scheduled to adjust, and add the margin to the index rate to find the interest rate for your ARM. For example, if your ARM is set to adjust on May 1 each year, is tied to the LIBOR index and has a 3.2 percent margin, you would look up the LIBOR index rate on May 1 and add 3.2 percent to the index to determine the new interest rate on your ARM.
Source...