The first number represents how long the initial rate remains fixed, while the second represents how frequently the rate may adjust afterward. For example, with a 7/3 ARM, the initial rate is fixed for seven years. After the initial seven-year period, the interest rate may adjust every three years for the remainder of the loan.
How Does an ARM Rate Adjust?
After the initial fixed-rate period ends, your rate is determined using an applicable U.S. Treasury rate plus a predetermined margin, subject to the adjustment limits of your loan.
For 7/3 and 10/3 ARMs, the adjustment is based on the 3-Year U.S. Treasury rate at the time of adjustment. For a 5/5 ARM, the adjustment is based on the 5-Year U.S. Treasury rate at the time of adjustment.
The applicable margin is:
- 2.75% for primary and secondary residences
- 3.25% for investment properties
Built-In Rate Limits
F&M Bank ARM loans include limits on how much the interest rate can change.
2 percentage-point adjustment cap
At each adjustment period, the rate cannot increase by more than 2 percentage points from the rate in effect immediately before the adjustment.
Lifetime rate cap
For primary and secondary residences, the rate cannot increase by more than 6 percentage points above the initial interest rate over the life of the loan.
For investment properties, the lifetime cap is 8 percentage points above the initial interest rate.
4.50% rate floor
The interest rate cannot adjust below 4.50% at any adjustment period.
