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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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Jeanette Holland
The Holland Group
113 Turner St.
Beaufort, NC 28516
Office: 888-879-7790
Fax: 252-504-2502
Jeanette@NUMBER1EXPERT.com

As a licensed real estate broker and Realtor for over twenty five years I have witnessed a huge transformation in the real estate industry. It is an exciting business and full of challenges and changes. But the most important part of the real estate business is not the property but the people. I have been blessed to work with and for the most wonderful of them all. Developing relationships is what this business is about. Dealing with integrity and honesty, being dedicated to your client or customer and making sure they are happy at the end of the day is what keeps my passion for real estate alive. Let us help you make your dreams come true on the Crystal Coast.

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