Chicago Mortgage

An adjustable rate mortgage, or ARM as it is popularly known as, is a mortgage loan [1] in which the interest rate on the note [2] is periodically adjusted based on a variety of indices [3]. Different lenders use different indices to calculate their interest rates, or their adjustable rates. Some of the commonly used indices are the 1-year constant-maturity Treasury (CMT) securities, the Cost of Funds Index (COFI), and the London Interbank Offered Rate (LIBOR). However, a few lenders prefer to use their personal or own indices to determine the rates. Lenders may choose to do this to avail a steady margin from the borrower, and their own cost of funding is related to the index. As a result, the payments made by the borrower may also change over time in accordance to the fluctuations in the resultant interest rates. Typically, the adjustable rate mortgages are characterized by their index and their limitations on charges or caps [4]. In many countries, the adjustable rate mortgages are the standard means of availing finance by offering the homes as securities, and in such cases, the credit facility is simply referred to as a mortgage.