Management has decided to create a new ARM product and have already ordered the brochures. However they have questions about how this program will work, apparently thats my job. Anyway, they are wondering if you offer a 5/5 ARM loan is there a "legal" annual rate cap? Or can it be whatever the bank wants it to be. For example, right now our rates are 2% annual adjustment with a 6% life of loan. Can they adjust it 6% the first year if they chose and then just not adjust it up any more? Sorry if this doesn't make sense. Let me know if you need more details. Thanks in advance. Not sure what I would do if I couldn't turn here fore help. You guys are life savers!

Can they adjust it 6% the first year if they chose and then just not adjust it up any more?

You can choose to allow the rate to increase the lifetime maximum in the first year if the index plus margin warrants it and the ARM disclosure & loan disclosure properly discloses the rate can increase by a maximum of 6% in first year, but you can't just choose to increase the rate by 6% in the first year unless you properly disclose that fact of the loan terms.

Great. Thank you for the information!

I understand 5/5 to mean rate adjustments every 5 years--but that's not how you're describing the rate changes. When, exactly, will your note call for rate changes?

As a side note, I'd be very concerned about managers who decide to offer a product but don't know how it works. This is beginning to sound like Obamacare.

That's a good point Richard. My response should haver referred to the first change date instead of the first year.