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Adjustable rate loans and margins explained


Learn what a margin is and how it affects your rate on an ARM or variable rate mortgage

Mortgage rates that are fixed for a specific time period and then can adjust are referred to as ARM's or variable rate loans. There are typically two components to this type of mortgage that effect the rate when your fixed period ends. The margin on an arm is a specific amount for example two, this number is added to an economic index such as the LIBOR or Prime Rate to calculate your new mortgage rate. Most arm's have a cap as to how much the rate can adjust up or down in the 1st year and subsequent adjustment periods. Most sub prime loans have margins over 5 percent and typically adjust to rates in excess of 10% which is a major reason for the fallout within this segment of the market.. 

11-19-2007 ? LoanNetwork.com





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