Here is a tip for those who are shopping for Adjustable Rate Mortgages (ARMs): the "margin" is almost as important as the initial rate. The margin is the percentage point above the average yields for Treasury notes on which future rate adjustments will be calculated.

Let's compare two hypothetical one-year ARMs. The first may have an initial interest rate of 7% with a 2.5 margin, while the second begins at 6 7/8% with a 2.75 margin. Both loans have rate caps of 2%. Suppose that at the end of the first year of the loan, the average of the one-year Treasury note yield has been 5 1/2%. For each loan, the lenders will add the margin to that 5 1/2% average yield. Thus the interest rate for first loan would increase from 7% to 8%, and the second would go from 6 7/8% to 8 1/4%. While the first ARM had a slightly higher initial rate, it will have lower rates in subsequent years, unless the Treasury note rates increase enough to activate the annual caps on the amount of the increase. There is a wide variance among margins in ARMs offered by competing lenders, and this should be a factor when you decide on your loan.

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Jonathan and Michelle Thoburn
Keller Williams Realty
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Jonathan and Michelle Thoburn with Keller Williams Realty were both born and raised in Northern Virginia which gives them that intimate base of knowledge of the area that is so important to buyers. That grasp of the region coupled with their low pressure approach is why this husband and wife team are among the top Realtors in the area. Click on the "Click to Call" icon above to speak to them now!

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