# Adjustable Rate 101

What is an Adjustable Rate?

An Adjustable Rate Mortgage provides a specific fixed rate term before becoming an adjustable mortgage.  An example: A 10/1 ARM is fixed for the first 10 years and then becomes a 1 year adjustable rate for the remaining term of the mortgage, thus giving you 10 years  of security at a fixed rate.

Advantages: If you know that you are selling your home in a short period of time, 10-12 years or less, you can get a mortgage rate that is 3/4’s to 1 full percent below the traditional mortgage rates.  Today a 10 year ARM is 5.00% and you can borrower up to 2 Million Dollars.

How do they work?

Adjustable Rate Mortgages (ARM’s) come in many different varieties.  The most common ARM’s are the following:  Three Year, Five Year, Seven Year and a Ten Year.  You will also see them displayed in this format as well:  3/1, 5/1, 7/1 and 10/1.  The first number represents the amount of years the loan will be fixed for and will not change from its original start rate.  The higher the first number or term, the higher the interest rate will be.

The second number represents how often the ARM will adjust after the fixed rate term ends.  Using a 5/1 ARM as the example, when your fixed term is about to expire, the Lender will send you a notice via mail notifying you that your rate is about to adjust and what that adjustment will be.  This will occur 45 days prior to this expiration date, in this case that would be 60 months in to this loan (5 Years). The new rate will be set for one year, or the term that is stated in the second number, 5/1.

The adjustments are based on 2 variables, the index and the margin.  The margin is set on the day you get the mortgage and is usually in the range of 2.25 or 2.75 depending upon the type of ARM you go with.  This will never change and is set for the life of the loan.  We would then add the current Index to this margin and combined that would create your new rate.

The Index can come from many places but is selected when we lock in your loan.  Typically we use the One Year Treasury Bill or the One Year LIBOR.  Both indexes move fairly slowly.  These Indexes are always posted in the Wall Street Journal but is very easy just to Google these terms. This will show you the current rate as well as show the history of these rates. You can also click this site at the US Treasury

Today’s one year treasury is at 4.00 (9/16/2022), this is the index.  Add this to the margin of 2.50 and your new rate today would be 6.50%. This is know as the Fully Indexed Rate. This rate would be rounded up to the next highest/nearest 1/8th in the case the T-Bill was not an even number.  Remember, this is what the rate would adjust to after the fixed term has ended.

Caps: Your loan comes with caps of 5/2/5, each number represents how your loan will adjust.  With the first adjustment the loan can adjust 5% up or down from the original start rate. The second number “2” is what it can adjust each time for the remaining years of the loan.  So, the second adjustment and every one after that the rate can move up or down a maximum of 2%.  The last number is the Life Cap.  This rate will never go higher than 5% of the starting rate.  So if you lock in a rate of 5.00% today, your rate would never exceed 10.00%.  To give you an idea, since 1996, this rate has not exceeded 8.25% at its high point. In the last several years, this rate as adjusted downward and as low as 2.00% in many cases.

I hope this is helpful. Always feel free to ask questions about any of this information. Email me at Bill@billnickerson.com or call 978-273-3227.

Thank you very much,

Bill Nickerson NMLS# 4194 | Mortgage Equity Partners| Lynnfield MA

# National Open House Weekend April 20 and April 21, 2013

Did you know it is National Open House Weekend?  The National Association of Realtors is expecting to sell almost 10% of the current inventory. With lots of homes on the market and great low rates, this spring market is turning out to be fantastic!  This weekend real estate agents from around the area will be hosting open houses as part of the national Open House Weekend.  The Open House Weekend provides a great opportunity to visit some of the many homes in your local area while learning more about homeownership from a professional real estate agent.  Be sure to take advantage of this weekend and attend some of the open houses in your area!

Call me today to see the closing cost credits you are eligible for!!

Need a realtor? Call me.  Need a real estate attorney?  Call me.  Need a mortgage or pre-approval?  Call me.  Have financing questions?  Call me.  Bill Nickerson 978-273-3227

Or send me an email at bill@billnickerson.com  If you need to apply online, visit my website at www.billnickerson.net

# Featured Open House Recipe

Occasionally I am asked by a realtor to sponsor a luncheon for their open house.  I have found that by making something special for the luncheon, the realtors slow down and take a moment to truly enjoy the lunch which tends to promote more conversation about the home they are viewing.  I greatly enjoy these interactions that occur.  This last week for the luncheon I made Quiche.  Check out my recipe below…Hope you enjoy it!

# Bill’s Quiche

Prep time: 30-45 minutes         Serves:  6-8

Ingredients:

1/3 lb. Prosciutto (from any deli ask for ¼ inch thick slice), diced

½ Onion(I prefer Vidalia), diced

5 Eggs, large

1 ½ C Whole milk (Healthy version)

2 ½ oz. Extra Sharp Cheddar, shredded

2 ½ oz. Mild cheddar, shredded

¼ C Parmesan cheese, grated

¼ C Marsala wine

½ C Butter, plus an extra ¼ inch slice

One 9-inch pie crust

### In advance:                                                                                                                Preheat oven to 350 degrees.                                                                                        Have all ingredients ready on counter.  Shred cheeses, dice meat and onion.      Remove pie crust from package and drape the crust over a 9 inch pie plate.

In medium sized saute pan, melt butter over medium heat.  Add diced onions; turning occasionally.  Once onions begin to brown; add diced prosciutto and continue browning about 2 to 4 minutes.  Then add Marsala wine and ¼ inch slice butter.  Lower heat and simmer; slowly cook until all Marsala wine has been cooked off (so liquid is mostly gone).

While the onions and prosciutto are cooking, prepare the pie plate by shaping the crust to fit into the plate.  Cover the bottom of the pie plate with extra sharp cheese only.  In a separate dish, whisk 5 eggs until blended;  then pour into whole milk. (I use a large 4 cup measuring cup to save on dishes).

Drain prosciutto and onions in a colander; then spread evenly over the cheese in the pie crust. Pour the egg/milk mixture over prosciutto and onions.  Spread the mild shredded cheddar evenly over the egg/milk mixture.  Sprinkle Parmesan cheese over the top.

Place into oven and bake 30 minutes.  Using a thermometer, you want the pie to be at least 175 degrees and for the crust to be slightly brown.  When done remove from oven and allow to cool for about 15 minutes before serving.  Enjoy!