As far as the adjustable rate mortgage is concerned, let me tell you one thing: that this is the mortgage for which the interest rates are being modified according to the market condition. There are two things which you will have to keep in mind. They are the indexes as well as the margin.
Adjustable rate mortgages and loans are good for the short term basis. Suppose you go for the adjustable rate mortgage for 15 years then it is quite sure that the interest rate will certainly become high after such a long period of time. Hence ARM is good for the short period of time only.
Let us now talk about the index and the margin. Generally the index and the margin are the two things on the basis of which the interest rate is being calculated.
The index is certainly the standard measure of the interest rates of the ARM. The margin is the extra added amount added to the index by the lender. The margin changes with the lender. Different lenders have the different margins. It is certainly up to them to calculate the interest rates.
If the index comes down then the interest rates also comes down and if the index goes up then the interest rates also goes up. There are many types of indexes upon which the lender keep an eye on. However there is one more thing which is quite important.
It is about margin. The margin is constant once selected by the lender. In fact the margin remains constant throughout the term of the loan. You can also increase or decrease the interest with the help of the interest rate caps.