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Adjustable Rate Mortgages - The Basics

An adjustable rate mortgage (ARM) has an interest rate that fluctuates periodically. This is in contrast to a fixed rate mortgage, which always has the same interest rate.

Every ARM has basic components:

  1. An index
  2. A margin
  3. Adjustment Period
  4. An interest rate cap
  5. An initial interest rate

The Index

An ARM’s interest rate is tied to one of many economic indices, some examples of which are the 1-year constant maturity Treasury security, the Cost of Funds Index, or the London Interbank Offered Rate. Different indices move at different rates so know the characteristics of the index used for your ARM.

The Margin

The interest rate for your ARM will be calculated by adding a margin to the interest rate from the index. The margin is basically the markup charged by the lender that allows them to make a profit off of your loan, such as adding 2% to the index, where the 2% is the margin. The margin of your loan usually does not fluctuate.

The Adjustment Period

The Adjustment Period controls when and how often your interest rate changes. For example, if your ARM has an adjustment period of 1 year, your interest rate will be subject to change at the end of each year and your monthly mortgage payment will be recalculated to reflect this change.

The Interest Rate Cap

Interest rate caps are built into the loan to protect the borrower from drastic interest rate fluctuations. The caps limit how much the interest rate or monthly payment can change at the end of each adjustment period. An ARM can also have a cap for the life of the loan. For example, during the life of a loan, the interest rate can only be increased by 5%.

The Initial Interest Rate

The Initial Interest Rate is the interest rate that you start with at the beginning of your loan period. The length of time your loan stays at this rate is built into the loan. For example, you may stay at the initial interest rate for 1 year, 5 years, or another length of time depending on your specific mortgage. This type of ARM is generally referred to as a Hybrid ARM. The initial interest rate for an adjustable rate mortgage is generally lower than that of a fixed rate mortgage.

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Testimonials

11/2018 
 
We bought our Kona home in November 2018 and are so grateful we worked with Lance and Kimi. We started working with them in the spring of 2018, when we visited Kona and Lance took us to see many properties and informed us about microclimates and different neighborhoods. Then we headed backed to Boston and Lance kept in touch with us about listings, the market, and the vog. One time he texted us a picture of a gorgeous clear day, and a few days later he texted a picture of a voggy day, saying he wanted us to see that too - that's the kind of people Lance and Kimi are, honest and upfront. Once we found a home their guidance and hard work were absolutely indispensable to us. Great negotiating skills, responsiveness to our many questions and concerns via text, email and Skype, and through the entire closing process holding our hands and digging up and/or checking all documents with our best interests in mind. There was so much to keep track of and so much we weren't even aware of that needed to be checked, we are beyond grateful that we worked with Lance and Kimi. They are experienced, knowledgeable, efficient, thorough, professional, and kind.
You can't go wrong with Lance and Kimi!

 
Denise & Joe  
2/19/2019
Lance, we love that your client has an agent who cares about them the way you do.
Love the idea of sharing the shifting market guide this way, and love even more your commitment to guiding and advising your clients through the buying/selling process. We are grateful to be your partner! 
Yours truly
Keeping Current Matters 
Charlotte P. H.

8/31/2018
What an outstanding experience we had with Lance Owens and Kimi Nagatoshi!! We gave Lance our thoughts about what we might be looking for in a new home on Hawaii Island and he showed us quite a number of places that fit that description. We hadn't thought we'd actually buy on that trip -- we were really only trying to see what we could afford -- but with what Lance showed us, we ended up putting an offer in after only 3 days of looking. And then Kimi went to work helping us through the entire process of the inspection, counteroffers, and, ultimately, the purchase. It's our dream home and we have both Lance and Kimi to thank! 
Karl and Mary 

Source: Realtor.com

Karl and Mary


8/30/2018
8/17/2018 
7/13/2017
5/22/2017
Lance and Kimi did a fantastic job selling our multiple lots in Kau. We continue to recommend Lance and Kimi to our friends!

Source: realtor.com

Kathy and John C.
5/18/2016 Aloha Lance! Thank you all for your “local kine” support of the Big Island Chocolate Festival this year. It was really very successful and your support helped us keep the ball rolling as we brought tickets in. I will let you know how much was raised for the schools, but wanted you to see this online news story that mentions your sponsorship. Hawaii 24/7 has quite a large readership. Thanks again! http://www.hawaii247.com/2016/05/15/big-island-chocolate-festival-names-top-confections/ Julie Ziemelis-Owner Ziemelis Communications Integrated Communications Expert-PR
2/29/2016 In 15+ years of Hawaii Mortgage Company dealing with thousands of realtors, it is very rare when you come upon agents who really care and love what they do and want to make the transaction as wonderful as possible for all parties involved. Lance and Kimi go above and beyond for their clients and the mortgage professionals (like us!) who they are working with. In a world full of mortgage regulations, Lance and Kimi make sure to keep everyone on track of the timelines to ensure closing on time, which benefits both the sellers and buyers. We are lucky to work with them and look forward to many more transactions together in the future! Maura K. Shannon Manager / Mortgage Loan Originator NMLS #339190 Hawaii Mortgage Company NMLS #232582 443 Portlock Road Honolulu, Hawaii 96825 Tel: 808-988-6622 Fax: 808-988-7722 Maura K. Shannon
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Kona Home Team
 Lance Owens RS-62947 | 808-936-8383 
Kimi Nagatoshi RS-76851 | 808-936-2575
LUVA LLC | RB-21030 | Office ID 2340 | Office 808-769-5111
75-240 Nani Kailua Dr. Suite 8, Kailua Kona, HI 96740