To give you an idea of what lies ahead, find out what would happen if the rate were to reset now. Plan ahead so you're not caught off-guard. This is something to keep an eye on.
Take a good look at your loan contract. In the section that discloses the rate's change date; there should be an explanation of how the lender will calculate the new rate. The ARM's rate will be based on an index and a margin. The index is an independent interest rate that is widely known -- the yield on the one-year Treasury note, for example, or the six-month London Interbank Offered Rate, or LIBOR.
The margin is a percentage that's added to the index. Let's say that hypothetically your index is the one-year LIBOR, and that today it's exactly 5 percent. And let's say your margin is 2.25 percent. If your ARM were to reset today, the new rate would be those numbers added together, or 7.25 percent.
The margin will be stated right there in the loan paperwork, although it might not use the word "margin" to describe it. As for the index, you can find it in the business section of your daily newspaper.
Now that you have the new rate information and the amount you owe, go ahead & calculate your new monthly principal and interest using a mortgage calculator. There are many websites that offer loan calculators or feel free to call me if you discover your loan is about to reset in the next 30-60 days. I'd be happy to review your loan options. Now is a great time to get a 30 year fixed. Rates are the lowest they have been in 2 years!
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