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Adjustable-Rate Mortgage (ARM) Disclosures


What is an ARM?

An Adjustable-Rate Mortgage, or ARM, is a mortgage with an interest rate that changes, or "adjusts," throughout the term of the loan. As a result of the fluctuating rate,  the monthly payment on the loan may also adjust.

 

How is my Interest Rate determined?

The interest rate on an ARM is based on a specific Index pre-determined by ACU and may be adjusted using a margin. The index and margins used by ACU are detailed below under each specific ARM product we offer. Please reach out to ACU directly to find out the current index rate.

 

What is an Index?

The index is a measure of interest rates generally that reflects trends in the overall economy. Different Lenders use different indexes for their ARM programs. Common indexes include the U.S. Prime Rate and the Constant Maturity Treasury (CMT) rate. An index rate changes periodically which is why ARM rates are adjustable.

 

What is a Margin?

The margin is an extra percentage that the lender adds to the index. Together, the index and the margin make up your interest rate.

 

Will my payment change?

On the date of a scheduled rate change, if the index has adjusted, the interest rate on your ARM will adjust. Therefore, your payment will also adjust to reflect the new rate. If the new rate is lower, your payment will decrease. If the new rate is higher, your payment will increase.

 

How often will my rate and payment change?

The two numbers separated by a slash in the name of an ARM product tell you when your rate and payment will change. For example, a 5/5 ARM has its initial rate change after the first five years then it changes every five years after that. If you're looking at a 5/1 ARM, your initial rate change will occur after five years, then every year after that.

 

Is there a limit to how much my rate will change?

Yes. Your interest rate will not adjust, up or down, by more than 2.000% at each rate change date. Additionally, your interest rate will never be higher than your original interest rate plus 6.000%. 

 

Will I be notified when my rate and payment change?

Yes. For the first rate change,  ACU will send you a notice at least 210 days, but no more than 240 days, before the first payment at the adjusted interest rate is due. This notice will contain information about the adjustment, such as the new rate, payment, and loan balance. It's important to note that the interest rate and payment in this first notice are estimated. The purpose of the notice is to serve as a reminder that your rate and payment will adjust. A more accurate notice will be provided at least 60 days, but no more than 120 days, before the first payment at the adjusted interest rate is due.

This 60-120 day notice will be provided for all rate changes during the life of the loan and will also contain information about the adjustment, such as the new rate, payment, and loan balance.

 

Will I have a pre-payment penalty?

ACU currently does not charge pre-payment penalties on its ARM products.

 

Current ACU ARM Programs

  • 5/5 ARM Primary
  • 5/5 ARM Secondary

 

5/5 ARM Primary

ACU offers a 5/5 ARM Primary product for 1-4 unit residential properties, condominiums, and manufactured homes to be used as the borrower's primary residence.

  • Index: 5-year U.S. Treasury Constant Maturity
  • Margin: + 1.75%
  • Rounding: Nearest 0.125%, with the exception of the initial starting rate

 

Example of a 5/5 ARM Primary, "Worst Case Scenario"

  • Loan Amount: $10,000
  • Loan Term: 30 years (360 months)
  • Initial Interest Rate: 5.370%
    • Index Rate: 3.620%
    • Margin: 1.750%
  • Initial Principal & Interest (P&I) Payment: $55.97

Assuming the maximum periodic increases in rates and payments:

  • Maximum Interest Rate Possible: 11.250%
  • Maximum P&I Payment: $86.56

The periodic payment may increase or decrease substantially depending on changes in the rate.

To calculate the P&I payment on a different loan amount, assuming the same rate and terms listed in the example above, use the following steps:

  1. Divide your loan amount by $10,000.
    Ex.: $250,000 / $10,000 = 25
  2. Multiply the result of step 1 by the Initial P&I Payment from the example above to get your initial monthly P&I payment.
    Ex.: 25 x $55.97 = $1,399.25
  3. Multiply the result of step 1 by the Maximum P&I Payment from the example above to get your maximum monthly P&I payment.
    Ex.: 25 x $86.56 = $2,164.00

 

5/5 ARM Secondary

ACU offers a 5/5 ARM Secondary product for 1-4 unit residential properties, condominiums, and manufactured homes to be used as a borrower's second/vacation home or investment property.

  • Index: 5-year U.S. Treasury Constant Maturity
  • Margin: + 2.25%
  • Rounding: Nearest 0.125%, with the exception of the initial starting rate

 

Example of a 5/5 ARM Secondary, "Worst Case Scenario"

  • Loan Amount: $10,000
  • Loan Term: 30 years (360 months)
  • Initial Interest Rate: 5.870%
    • Index Rate: 3.620%
    • Margin: 2.250%
  • Initial Principal & Interest (P&I) Payment: $59.12

Assuming the maximum periodic increases in rates and payments:

  • Maximum Interest Rate Possible: 11.750%
  • Maximum P&I Payment: $90.63

The periodic payment may increase or decrease substantially depending on changes in the rate.

To calculate the P&I payment on a different loan amount, assuming the same rate and terms listed in the example above, use the following steps:

  1. Divide your loan amount by $10,000.
    Ex.: $250,000 / $10,000 = 25
  2. Multiply the result of step 1 by the Initial P&I Payment from the example above to get your initial monthly P&I payment.
    Ex.: 25 x $59.12 = $1,478.00
  3. Multiply the result of step 1 by the Maximum P&I Payment from the example above to get your maximum monthly P&I payment.
    Ex.: 25 x $90.63 = $2,265.75

 

Disclosures for ACU's other ARM programs are available upon request.

The information and examples above are effective as of August 9, 2024.

For current rates, please visit our rates page.


  Click here to review the CFPB Consumer Handbook on Adjustable-Rate Mortgages  


Athol Credit Union

513 Main Street

Athol, MA 01331

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