The current ARM interest rates are dependent upon a number of factors, including updated mortgage rates, the SOFR, or the Secured Overnight Financing Rate index, as well as caps.
More on the SOFR Index
The Secured Overnight Financing Rate, SOFR, is the standard measurement for overnight borrowing charges.
It’s calculated by the New York Federal Reserve Bank.
We utilize a 30-day average of the SOFR to set interest rates for adjustable-rate mortgages.
Every adjustable-rate home loan includes a cap that limits how much the interest rate can change during each adjustment date, as well as over the life of your loan.
There are initial caps, periodic caps, and lifetime caps:
- The initial cap sets the floor and the ceiling for your rate when it’s time for the first adjustment.
- The periodic cap sets the floor and the ceiling for your rate during each adjustment after the first one.
- The lifetime cap sets the floor and the ceiling for your rate during the life of your loan.
These caps are displayed as a series containing three numbers with slashes separating them.
Let’s say you have a 5/6 ARM with 2/1/5 caps. The first digit means that after the first 5 years of a fixed interest rate, the first adjustment will be capped at 2%.
On every subsequent adjustment after that the initial cap can only vary by 1% in either direction.
The final digit tells you that the total lifetime interest of your loan can’t fluctuate more than 5%.