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Don Ernle
PIMA CANYON REALTY

Tucson, AZ 85711-5313
Phone: 520-907-2682
Email: DON@DONERNLE.COM

Thank you for visiting today. If this is your first visit, take your time and look around. I have plenty of information and resources available to you. If you are a return visitor, thank you. I would love to hear from you and tell you how I can serve all your real estate needs.

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Adjustable Rate Mortgages - The Basics

An adjustable rate mortgage (ARM) has an interest rate that fluctuates periodically. This is in contrast to a fixed rate mortgage, which always has the same interest rate.

Every ARM has basic components:

  1. An index
  2. A margin
  3. Adjustment Period
  4. An interest rate cap
  5. An initial interest rate

The Index

An ARM’s interest rate is tied to one of many economic indices, some examples of which are the 1-year constant maturity Treasury security, the Cost of Funds Index, or the London Interbank Offered Rate. Different indices move at different rates so know the characteristics of the index used for your ARM.

The Margin

The interest rate for your ARM will be calculated by adding a margin to the interest rate from the index. The margin is basically the markup charged by the lender that allows them to make a profit off of your loan, such as adding 2% to the index, where the 2% is the margin. The margin of your loan usually does not fluctuate.

The Adjustment Period

The Adjustment Period controls when and how often your interest rate changes. For example, if your ARM has an adjustment period of 1 year, your interest rate will be subject to change at the end of each year and your monthly mortgage payment will be recalculated to reflect this change.

The Interest Rate Cap

Interest rate caps are built into the loan to protect the borrower from drastic interest rate fluctuations. The caps limit how much the interest rate or monthly payment can change at the end of each adjustment period. An ARM can also have a cap for the life of the loan. For example, during the life of a loan, the interest rate can only be increased by 5%.

The Initial Interest Rate

The Initial Interest Rate is the interest rate that you start with at the beginning of your loan period. The length of time your loan stays at this rate is built into the loan. For example, you may stay at the initial interest rate for 1 year, 5 years, or another length of time depending on your specific mortgage. This type of ARM is generally referred to as a Hybrid ARM. The initial interest rate for an adjustable rate mortgage is generally lower than that of a fixed rate mortgage.

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Testimonials

Don represented us thru the entire process, not just the paperwork, he kept us informed and was present for the inspections, the septic certification and the final walk thru inspections despite the great distance out of the Tucson area he had to travel. I highly recommend him. Cathie & Paul Neuber
Very professional and punctual service. A true communicator. Always available to serve our family needs in Real Estate. Bill & Arlette Penn
Don is very nice to do business with and I have no reservations in recommending his services. Lee R. Caruth
I had been looking for property to fit my needs for 2 years unsuccessfully. Don found exactly what I was looking for in just 2 WEEKS. I cannot recommend Don Ernle highly enough..... John C. Sweeney WA6PBD
I recommend Don Ernle to any picky home buyer. He patiently showed my family 150 homes, some of which we visited multiple times, as we shopped for our home. Don is extremely knowledgeable and was able to point out the good and the not-so-good features of every home we visited. Don started out as our Real Estate agent and became our friend. When it's time to sell our home, we will call Don. Diane Zimmerman AA3OF & Robert Zimmerman KB3IWD
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