Many borrowers today have ARMs, or adjustable rate mortgages, and it can be a good loan program in various situations. A lot of them were taken out around two to four years ago when the housing boom ruled the landscape. Those home loans are now in the process of resetting and a large majority of homeowners have very little idea what will happen to the interest rate. Will it go up? If so, by how much? Let's look at the four factors that determine the new rate and then you can easily figure it out yourself. So, pick up your mortgage papers and find the note among the stack.

Here we go. First comes the interest rate index that your ARM is linked to. These indexes can have funny names like COFI, Libor and CODI, nevertheless your note will tell you which one it is. It could even be the Prime Rate. Today's index level is available at HSH.com.   

Next let your finger do the walking and locate the margin that is piled on top of the index to come up with the new rate. Take note that margins can vary wildly, all the way from about 1 to 7%. So far so good. Now you have tow pieces of the important data.

The last two items concern the caps on the rate. One is the adjustment cap that tells you how much it can increase. The other is the maximum the rate can go to during the loan's lifetime. Every ARM has the maximum feature, but the adjustment cap is not universal.

Armed with the above data you can quickly figure out about where your interest rate will go at the reset. If in doubt, call the lender who is servicing your mortgage and compare rates with them. Wouldn't it be nice if they included the projected rate in each statement you receive? That would be true service.