When an ARM (adjustable rate mortgage) adjusts, does only the interest rate change, or is the balance re-amortized for the remaining period?

Asked by UScitizen (4306

) September 23rd, 2010

When an ARM hits the annual adjustment, the interest rate changes according to the index specified in the contract. What if the mortgagor has made additional principal payments since the last adjustment? Does the outstanding balance re-amortize for the remaining period of the mortgage?

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1 Answer

ARMs reamortize out to the original length of the contract on the adjustment date. If you make extra principal payments the monthly payments will be reduced to maintain the same maturity date. I knocked over $100 off my monthly payment in the first five years of my mortgage by making extra payments.

Adirondackwannabe (36713

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