Got an ARM rate adjustment notice? What to check

Know which notice you received

Before the first rate change, the servicer generally must send a notice 210 to 240 days before the first payment at the new rate is due; if the new rate is not yet known, the notice will show an estimate. For adjustments that change your payment, including the first, a notice generally arrives 60 to 120 days before the first new payment is due. Some loans follow different timing, such as loans that adjust very frequently. Check the notice date and the date the first new payment is due.

How the new rate is calculated

An ARM’s new rate is generally the index plus the margin, subject to any caps. The notice should name the index and a source for it, state the margin, and describe any limits that affected the result. Your loan note sets the exact formula, including any rounding and when the index value is taken. Compare the notice with your note, not with rates advertised today.

• Find the index named on the notice and where its value is published.
• Confirm the margin matches your loan note.
• Check whether a cap limited the change.

Check the caps and the new payment

Caps can limit how much the rate changes at the first adjustment, at each later adjustment, and over the life of the loan. The notice should show the current and new rate, the current and new payment, the expected loan balance, and the remaining term. If a cap kept the rate below what the formula would produce, the notice should say so and when that unused increase could apply later. Recalculating the payment from the balance, rate, and remaining term is a useful check.

Plan for the change

Compare the new payment with your budget before it takes effect. The notice before an initial adjustment also lists alternatives you may be able to explore, such as refinancing, selling, modifying the loan, or payment forbearance, and how to find a housing counselor. If you expect trouble making the new payment, contact the servicer early. A notice that doesn’t match your note is a reason to ask questions, not proof of an error.

Keep the notice with your loan records

Save the notice with your loan note and the statements before and after the change, so you can confirm the new payment was applied as described. In Lighthouse, a statement showing the new rate can update your Home Profile, and Lighthouse Logic can help you prepare questions for the servicer. Check any figure against the original notice before relying on it.