The interest rate or rates and upfront fees paid to the lender and mortgage
broker. Some upfront charges are expressed as a percent of the loan, and some are expressed in
dollars. The price includes the total of each type. On a fixed-rate mortgage (FRM), one interest rate
is preset for the life of the loan. On an adjustable rate mortgage (ARM), the rate is preset for an
initial period, ranging from one month to 10 years, and then can change. For ARM shoppers who are
uncertain about how long they will be in their house, the price includes ARM features that affect the
ARM rate after the initial rate period ends. These include the margin, maximum rate, rate adjustment
period, and rate adjustment caps. The margin is the amount that is added to the index used by the ARM
in determining the rate after the initial rate period ends. In a stable interest rate environment,
the ARM rate will become the index plus margin, called the 'fully indexed rate.' Both the index and
the margin are specified in the ARM contract. The maximum rate is the highest rate permitted by the
ARM contract. It tells shoppers how high the ARM rate can go in a rising rate environment.
The rate adjustment period and rate adjustment caps indicate how often the rate is changed and the
maximum amount of any change. Hence, they indicate whether any rate increases at the end of the
initial rate period will be abrupt or gradual.