Lenders of Fha Arms Must Calculate Rate Adjustments Using This
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FHA ARM Rate Adjustment Calculator
Adjustment Results
Calculated Rate (Index + Margin):
Applied Periodic Cap Constraint:
New Adjusted Rate:
How Lenders Calculate FHA ARM Rate Adjustments
Lenders of FHA Adjustable Rate Mortgages (ARMs) must calculate rate adjustments using a standardized formula. This ensures transparency and protects borrowers from unpredictable market fluctuations. The calculation relies on three primary components: the Index, the Margin, and the Adjustment Caps.
1. The Index (The Variable)
FHA ARMs typically use the 30-day Average Secured Overnight Financing Rate (SOFR) or the Weekly Average Yield on U.S. Treasury Securities adjusted to a constant maturity of one year (CMT). This represents the "market" component of your interest rate.
2. The Margin (The Constant)
The margin is a fixed percentage point value agreed upon at the closing of the loan. Unlike the index, the margin never changes. To find the "fully indexed rate," the lender adds the index to the margin.
3. Adjustment Caps (The Safeguard)
FHA regulations impose strict limits on how much a rate can change. These include:
Initial Cap: Limits the first adjustment.
Periodic Cap: Limits subsequent annual adjustments (often 1% for standard FHA ARMs).
Lifetime Cap: The maximum interest rate that can ever be charged on the loan (often 5% above the initial start rate).
Example Calculation
If your current index is 4.00% and your margin is 2.25%, your calculated rate is 6.25%. However, if your current rate is 5.00% and you have a 1% periodic cap, your new rate cannot exceed 6.00%, even though the math suggests 6.25%.
function calculateFHAArm() {
var currentRate = parseFloat(document.getElementById('currentRate').value);
var indexRate = parseFloat(document.getElementById('indexRate').value);
var marginRate = parseFloat(document.getElementById('marginRate').value);
var periodicCap = parseFloat(document.getElementById('periodicCap').value);
var lifetimeCap = parseFloat(document.getElementById('lifetimeCap').value);
var initialRate = parseFloat(document.getElementById('initialRate').value);
if (isNaN(currentRate) || isNaN(indexRate) || isNaN(marginRate) || isNaN(periodicCap) || isNaN(lifetimeCap)) {
alert("Please fill in all required fields with valid numbers.");
return;
}
// 1. Calculate Fully Indexed Rate
var rawCalculated = indexRate + marginRate;
// 2. Determine Max and Min moves based on Periodic Cap
var maxPeriodic = currentRate + periodicCap;
var minPeriodic = currentRate – periodicCap;
// 3. Apply Periodic Cap
var appliedRate = rawCalculated;
var capNote = "None";
if (appliedRate > maxPeriodic) {
appliedRate = maxPeriodic;
capNote = "Capped at Max Periodic Increase";
} else if (appliedRate lifetimeCap) {
appliedRate = lifetimeCap;
capNote = "Capped at Lifetime Maximum";
}
// 5. Apply Floor (Rate cannot drop below Margin in most FHA ARMs)
if (appliedRate < marginRate) {
appliedRate = marginRate;
capNote = "Limited by Margin Floor";
}
// Output results
document.getElementById('rawRate').innerText = rawCalculated.toFixed(3) + "%";
document.getElementById('capConstraint').innerText = capNote;
document.getElementById('finalRate').innerText = appliedRate.toFixed(3) + "%";
document.getElementById('armResults').style.display = "block";
}