We’ve never done an ARM product and I am not familiar with them. We want to set up a product that rate will change every five years, and it will be prime+1. I’m reading the requirements of the ARM notices, and it seems very confusing. The initial notice has to be sent at least 210 but no more than 240 days before 1st payment at new rate is due. If using estimate, a new disclosure is sent 2 to 4 months before change.

Does that mean that we have to determine 7 or 2 months in advance what rate we are going to charge the customer? So if the rate is supposed to change on 08/01/2016 and the payment is due 08/05/16, I would have to determine the rate for August 5th, 7 months ahead of time? It just doesn’t seem right. How can I determine a rate 7 months in advance when I don’t know what the index will be?

Not sure if I can answer all your questions, but you will most likely have a lead time on your rate change.(ex: 45 days before each change date). That means that if your rate is scheduled to change on the payment due date of 8/1, you would be using the index as of 45 days prior to that day. Once the rate changes, the payment would change for the next billing cycle and the new payment would then be affective 9/1.

It's still a little muddy to me, but it sort of makes sense what you said. Thank you.