How to add ARM information?

The amount added to the index to establish the adjusted interest rate. Once the margin is added to the index, the index is known as the fully indexed rate.

For example: if the current index value is 5.50% and your loan has a margin of 2.5%, your fully indexed rate is 8.00%.

Also known as Life Cap, the ceiling is the maximum percentage to which the note can rise. By law, virtually all ARMs must have an overall cap.

For example: a loan with 12 entered as the ceiling means that the note rate cannot adjust higher than 12%.

The floor indicates the minimum interest rate on the loan. 

For example: a loan with 4 entered as the floor means that the note rate cannot adjust lower than 4%.

The percent that the rate will change after the first fixed period.

For example: Enter 1.5 for a loan that will change from its initial note rate of 6% to 7.5%.

The two text boxes represent the decrease and increase rate caps respectively.

For example: To enter a loan with a 2% cap that applies to both rate increases and decreases, enter 2% in both places. Alternatively, to enter a loan with a 2% rate increase cap and no cap on rate decreases, leave the first text box blank (not zero) and enter 2% on the second text box.

The checkbox indicates if the cap is to be applied on the next rate change and will be automatically unchecked by the system once applied.

TIP: Uncheck this box for any loans added to the system for which the first payment cap has already been applied.

The maximum percentage that the rate can increase (after the first rate change) from one adjustment period to the next.  

For example: if the rate can only adjust 2% on each adjustment after the first rate change, then enter 2.

The two text boxes represent the decrease and increase rate caps respectively.

For example: to enter a loan with a 2% periodic cap that applies to both rate increases and decreases, enter 2% in both places.

Alternatively: to enter a loan with a 2% rate increase cap and no cap on rate decreases, leave the first text box blank (not zero) and enter 2% on the second text box.

Indicate the nearest fraction of a percent by which the calculations should be rounded.

For example: to round to 1/8 of a percent, enter .125 as the rounding factor.

Select the rounding method from the drop-down list. The choices are:

• None. No rounding. The number is truncated to 3 decimals.
• Up. Rounded up to the nearest rounding factor.
• Down. Rounded down to the nearest rounding factor.
• Nearest. Rounded (up or down) to the nearest rounding factor.

Enter the effective date for the next rate adjustment.

For example: for a new loan with monthly payments, first payment due date on 01/01/2023 and a teaser rate of 3 months, enter 04/01/2023. After the initial setup, the system will automatically compute this date as adjustments are applied.

If not daily, enter the number of months between each periodic rate adjustment after the first.  Check the box if the timing of each periodic rate adjustment after the first is every day.

For example: if the rate can only adjust every 6 months, enter 6 as the adjustment frequency.

Check this box if the loan has a carryover clause. If a rate cap keeps the interest rate below the sum of the index plus the margin, the unused rate amount is carried over and may be used in future rate adjustments. The rate in the text box is the balance (unused) carryover rate.

INFO: If you use carryover, a drop in an index rate does not always lead to a drop in the note's interest rate or monthly payments. In fact, the note's interest rate and payment amount may increase even though the index rate stayed the same or declined. This happens when an interest rate cap has been holding the note's rate down artificially below the sum of the index plus the margin and unapplied rate increases were carried over.

Payment caps limit the amount the payment can increase at the time of each payment adjustment. Enter here the maximum percentage of the previous payment amount the payment can adjust at each payment adjustment.  

For example: if the payment can only adjust a maximum of 7.5% during each adjustment, then enter 7.5 as the payment cap.

NOTE: Potential Negative Amortization. Negative amortization is the gradual increase in the mortgage debt that occurs when the monthly installment is not sufficient to fully repay both principal and interest. The shortage, which is the result of insufficient interest repayment, is added to the unpaid principal balance creating "negative" amortization. The principal balance of ARMs with payment caps can increase due to periodic rate changes that trigger payment caps and payment amounts which are no longer large enough to pay all the periodic interest due. Because payment caps limit only the amount a payment can increase and not interest rate increases, payments sometimes do not cover all the interest due on the loan. This means that the interest shortage may be automatically added to the balance.

Enter in this field the maximum percentage of the original loan amount to which the balance can rise.  

For example: if the original loan amount is $100,000 and the maximum amount to which the loan can increase is $125,000, then enter 125 as the negative amortization cap. You must leave this field blank if your loan doesn't have a negative amortization cap.

TIP: Payments will be automatically recast to fully repay the loan over the remaining term once the negative amortization cap point is reached.

Enter the effective date for the next recast. For example, if the loan recasts every year for 5 years, enter the date of the first recast here, 12 months as the recast period and the last recast date in the stop recast field.

TIP: If the loan recasts in 5 years and never again, then enter 0 months in the recast period field, the first recast date in both, the next recast date field and the stop recast date field.

Select this option if you want to recast the payment to a date other than the loan's maturity date.

TIP: For example, to enter a loan fully amortized over 30-years but due in 5-years, you would enter the 5-year date in the Maturity field and the 30-year date in this field.

Select this option to provide borrowers with adjustment notices when an interest rate adjustment and/or payment change is due.

TIP: You are required to provide borrowers with adjustment notices at least once each year in which an interest rate adjustment is implemented without an accompanying payment change, and at least 25 but not more than 120, calendar days prior to the due-date of a payment at the new level. Adjustment notices must either be delivered or placed in the U.S. mail within the time limitation.

The value entered here will determine how far in advance adjustment notices are printed. Enter the numbers of days before the adjustment to send the notice.

TIP: A value between 30 and 45 days is commonly used.

For example: a loan with a next payment adjustment date of 11/1/2004 and a notice lead days period of 30 days will be selected by the assistant for adjustment on or after 10/1/2004. For additional information see How Loans Are Selected for Rate & Payment Changes.