Tamela Roche
Email
 Phone
Office - Fax - Cell
617-245-4072
Coldwell Banker
Residential Brokerage
1730 Massachusettes Ave
Cambridge, MA
02138
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Fixed Rate Mortgage vs. LIBOR ARM
A fixed rate mortgage has the same payment for the entire term
of the loan. An adjustable rate mortgage (ARM) has a rate that can
change, causing your monthly payment to increase or decrease. LIBOR,
which stands for the London InterBank Offered Rate, is an index
set by a group of London based banks, and sometimes used as a base
for U.S. adjustable rate mortages. This calculator compares a fixed
rate mortgage to a LIBOR ARM.
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Definitions
- Fixed Rate Mortgage
- A fixed rate mortgage has the same interest
rate and monthly payment throughout the term
of the mortgage. The payment is calculated
to payoff the mortgage balance at the end
of the term. The most common terms are 15
year and 30 years.
- LIBOR ARM
- This is an adjustable rate mortgage (ARM)
that uses London Interbank Offered Rate (LIBOR)
as its base index.. The term is typically
30 years. After any fixed interest rate period
has passed, the interest rate and payment
adjusts annually based on the LIBOR rate.
| Common Adjustable Rate
Mortgages |
| ARM Type |
Months Fixed |
| 10/1 ARM |
Fixed for
120 months, adjusts annually for the
remaining term of the loan. |
| 7/1 ARM |
Fixed for
84 months, adjusts annually for the
remaining term of the loan. |
| 5/1 ARM |
Fixed for
60 months, adjusts annually for the
remaining term of the loan. |
| 3/1 ARM |
Fixed for
36 months, adjusts annually for the
remaining term of the loan. |
| 1 year ARM |
Fixed for
12 months, adjusts annually for the
remaining term of the loan. |
- Mortgage amount
- Expected balance for your mortgage.
- Term in years
- The number of years over which you will
repay this mortgage. The most common mortgage
terms are 15 years and 30 years.
- Expected rate change
- The annual adjustment you expect in your
LIBOR ARM. The range for this calculator is
minus 3% to plus 3%. Use a negative value
if you believe interest rates will decrease,
a positive value if you believe they will
increase.
- Interest rate
- Annual interest rate for each mortgage type.
Typically an LIBOR ARM will have a lower interest
rate than a fixed rate mortgage.
- Months rate fixed
- This is the number of months the rate is
fixed for an LIBOR ARM. During this period
the interest rate and the monthly payment
will remain fixed. The rate will then adjust
annually by the expected rate change.
- Interest rate cap
- This is the maximum interest rate for this
mortgage. The mortgage's interest rate will
never exceed the interest rate cap.
- Prepayment
- A monthly prepayment of principal you would
like to apply to your LIBOR ARM balance.
- Monthly payment
- Monthly principal and interest payment (PI)
for the Fixed Rate Mortgage and the LIBOR
ARM. This includes any prepayments of principal
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