An annual ARM cap is a limit on the amount that your interest rate can increase or decrease from one year to the next. For example, if you have a 5/1 ARM with a 2% annual ARM cap, your interest rate can increase or decrease by up to 2% each year, but it can never go above or below 7%. What happens after a 7 year ARM? After a 7 year ARM, the interest rate will adjust based on the index value at the time of the adjust date. The new interest rate cannot increase more than 5% over the initial interest rate, nor can it decrease more than 2%.

#### What is a 10 year ARM mortgage?

A 10 year ARM mortgage is a mortgage that has a fixed interest rate for the first 10 years of the loan and then an adjustable interest rate for the remaining term of the loan. The adjustable interest rate is based on an index, plus a margin. The index is usually the London Interbank Offered Rate (LIBOR), and the margin is usually 2.5%. What are the two most common types of caps in an adjustable-rate mortgage? The two most common types of caps in an adjustable-rate mortgage are initial rate caps and periodic rate caps.

An initial rate cap limits how much the interest rate can increase at the start of the loan. A periodic rate cap limits how much the interest rate can increase during each adjustment period. What is the purpose of an ARM payment cap? An ARM payment cap is a limit on the amount that your monthly payment can increase. It is designed to protect you from large increases in your payment if interest rates rise.

##### Is an ARM a good idea?

There are many different types of mortgages, and each has its own set of pros and cons. An ARM, or adjustable-rate mortgage, is one type of mortgage that may appeal to homebuyers who are looking for a lower initial interest rate. However, there are some potential risks to consider before deciding if an ARM is the right choice for you.

One potential downside of an ARM is that your interest rate can change over time. This means that your monthly mortgage payment could go up or down, depending on market conditions. If interest rates rise, your payment could become unaffordable, and you could end up in foreclosure.

Another thing to keep in mind is that most ARMs have a "teaser" rate that is lower than the true interest rate. This rate is typically only available for a brief period of time, after which the interest rate will adjust to its true value. This could result in a substantial increase in your monthly payment.

Before deciding if an ARM is right for you, be sure to talk to a qualified mortgage lender. They can help you understand the risks and benefits of this type of mortgage, and help you find the best loan for your needs.