Posted on: 07th Nov, 2006 10:15 am
I am thinking of taking a 3/1 arm and as per my knowledge if we add the lender fees then the apr should be more than the interest rate. But many lenders I approached are giving me apr which is lower than the interest rate even with having some kind of lender fees. I am confused, any suggestion will be really helpful. I am in ID,thanks
Hi,
It might happen if the market does not fluctuate and the apr will be below the initial interest rate at the time of first time rate adjustment.
It might happen if the market does not fluctuate and the apr will be below the initial interest rate at the time of first time rate adjustment.
Hi Woodruff,
If we go with the scenario of a "stable rate" for interest rate index then when the initial period ends the interest rate becomes equal to the fully indexed rate. Upon this interest rate the APR is calculated, the fully indexed rate being the total of interest rate index and a margin as per the note.
Let me give you an example to explain it better. Let us take a situation of a 3/1 ARM using the starting rate of 4.75% for the 1-year treasury rate with a very low value for the index around 1.30 percent, having a margin of 2.75 percent and a cap of 2 percent on rate adjustment.
With these figures the fully indexed rate comes to be 4.05 percent. Thus the APR will be calculated with 4.75 percent for the first three years and afterwards for the remaining years it will be 4.05 percent. As you can see the APR is going to be lower than the initial rate unless the fees that are charged by the lender go very high.
Thanks
Colin
If we go with the scenario of a "stable rate" for interest rate index then when the initial period ends the interest rate becomes equal to the fully indexed rate. Upon this interest rate the APR is calculated, the fully indexed rate being the total of interest rate index and a margin as per the note.
Let me give you an example to explain it better. Let us take a situation of a 3/1 ARM using the starting rate of 4.75% for the 1-year treasury rate with a very low value for the index around 1.30 percent, having a margin of 2.75 percent and a cap of 2 percent on rate adjustment.
With these figures the fully indexed rate comes to be 4.05 percent. Thus the APR will be calculated with 4.75 percent for the first three years and afterwards for the remaining years it will be 4.05 percent. As you can see the APR is going to be lower than the initial rate unless the fees that are charged by the lender go very high.
Thanks
Colin