WESTAR FUNDING CORP. - "Flexible mortgage solutions to fit your unique needs"

TYPES OF LOANS

Adjustable Rate Loans

Variable or adjustable loan are loans where the interest rate is fixed for an initial period of time, after which the rate and monthly payments fluctuate over the remainder of the loan term. With this type of loan, your interest rate periodically adjusts based on changes in a defined index. The index for your particular loan is established at the time of application. Click here to see a list of well known ARM indexes.

The margin is a fixed percentage point added to the index to compute the interest rate. The result will then be rounded to the nearest one-eighth of a percent.

Example:

The index is 5.3% and the margin is 2.5%,
then the new interest rate = 5.3% + 2.5% = 7.8%.
The margins remain fixed for the term of the loan and are not impacted by the financial markets and movement of interest rates. Lenders use a variety of margins depending upon the loan program and adjustment periods.
Most ARMs have an interest rate cap to protect you from enormous increases in your monthly payments. A lifetime cap limits the interest rate increase over the life of the loan. A periodic or adjustment cap limits how much your interest rate can rise at one time.

With most ARMs, the interest rate will generally adjust once every six months or year depending on your terms with the lender. The interest rate on negatively amortized loans can adjust monthly. A loan with an adjustment period of 6 months is called a 6-month ARM, while an adjustment period of 1 year is called a 1-year ARM, and so on.

Most ARMs generally offer an initial lower interest rate than the fully indexed rate (index plus margin) during the initial period of the loan, which could be one month or a year or more. All ARMs are available with 30 - year terms and some with 15 or 40 year terms. Adjustable rate mortgages generally have a lower initial interest rate than fixed rate loans.

Option ARM Loans