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Kenny Gays
Principal Broker / REALTOR
®, SFR, ABR
Smoky Mountain Real Estate Corp.

459 Glades Road
Gatlinburg, TN 37738
Phone: 865 805-2541 Cell Direct
Office: 865 277-8115
Fax: 8777151213
Email: kennygays@investthesmokies.com

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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

Here is what georgethomas wrote: How likely are you to recommend this agent? highly likely Rate agent on specific characteristics Local knowledge: ***** Process expertise: ***** Responsiveness: ***** Negotiation skills: ***** Summary of their experience Kenny Gays sold 2 rental properties for me and helped me find a home in Sevierville for my personal use when I moved from Florida in 2008. As a listing Agent he helped me sell 2 rental properties in Gatlinburg during a very difficult real estate market. As a Buyers Agent he went way above and beyond the call of duty helping me find a personal residence. He spent several days searching for a property he thought I would like before I even arrived here to begin my search. He worked with me for almost a week showing me different properties before I finally made my decision. As both a Buyers Agent and a Listing Agent I found him to be helpful, sincere and honest. He always worked in my best interest and never tried to push me in any direction although he did give me invaluable advice at times. I will always be indebted to him because the house he found for me has turned out to be the house I am enjoying more than any house I've ever owned. Whenever I need to buy or sell property I will certainly contact Kenny. I highly recommend him. Service provided Helped me buy and sell homes From Zillow.com George Thomas
Kenny helped us find our dream cabin in Gatlinburg. We were unsure of the foreclosure process but Kenny helped us through the entire process and made us feel at ease with our purchase. Thank you The Marcil Family
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