Mortgage Glossary - All About ARM's
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Cap
Adjustable Rate Mortgages have fluctuating interest rates, but those fluctuations are usually limited to a certain amount. Those limitations may apply to how much the loan may adjust over a six-month period, an annual period, and over the life of the loan, and are referred to as "caps." Some ARMs, although they may have a life cap, allow the interest rate to fluctuate freely, but require a certain minimum payment that can change once a year. There is a limit on how much that payment can change each year, and that limit is also referred to as a cap.
Certificate of Deposit Index
One of the indexes used for determining interest rate changes on some ARMs. It is an average of what banks are paying on certificates of deposit.
Change Frequency
The frequency (in months) of payment and/or interest rate changes in an ARM.
COFI Mortgage
Adjustable rate mortgage with rate that adjusts based on a cost-of-funds index, the 11th District Cost of Funds is more prevalent in the West and the 1-Year Treasury Security is more prevalent in the East.
Conversion
The right of a borrower to convert an adjustable or balloon loan into a fixed loan.
Convertible ARM
An adjustable rate mortgage that allows the borrower to change the ARM to a fixed-rate mortgage within a specific time.
Cost of Funds Index (COFI)
One of the indexes that is used to determine interest rate changes for certain ARMs. It represents the weighted-average cost of savings, borrowings, and advances of the financial institutions such as banks and savings & loans, in the 11th District of the Federal Home Loan Bank.
Current index value
The most recently published value of the index used to adjust the interest rate on indexed ARMs.
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