The Doctor Loan as an Adjustable Rate Mortgage (ARM)
- An ARM is a mortgage with an interest rate that may vary over the term of the loan, usually in response to changes in the LIBOR, Prime rate or Treasury Bill rate. The purpose of the interest rate adjustment is primarily to bring the interest rate on the mortgage in line with market rates after the fixed term is over.The LIBOR is the best and most popular index for an ARM to make an adjustment.
Borrowers are protected by a ceiling, or maximum interest rate, which can be reset annually after the fixed term period. The Doctor Loan Arm’s will be fixed with lower more attractive rate than any long term fixed rate mortgage — compensating the borrower for the risk of future interest rate fluctuations.
Thousands of dollars can be saved by choosing the ARM program that best suits your family needs. Do not take on a 30 year fixed term if you honestly feel you will not be in the home for longer than an offered ARM term.
Choosing an ARM is a great idea when:
- Interest rates are stable or may be drifting downward
- You realistically do not intend on keeping the mortgage longer than the ARM fixed term. The fixed terms range from 3 years, 5 years, 7 years or 10 years!
ARMs have the following distinguishing features:
- Best Index
- Best Margin
- Best Adjustment Frequency
- Best Initial Interest Rate
- Best Interest Rate Caps
- No pre-payment penalty allowed
- An ARM’s interest rate increases and decreases based on publicly published indexes. ARMS are based on different indexes including:
- United States Treasury Bills (T-bills)
- The 4th District Cost of Funds Index (COFI)
- London Interbank Offering Rate Index (LIBOR) – Best in class and most popular for the Doctor!
- Certificate of Deposit Indexes (CODI)
- 12-Month Treasury Average (MTA or MAT)
- Cost of Savings Index (COSI)
- Bank Prime Loan (Prime Rate)
- Margin is a fixed percentage amount that is pointed added to the index – accounting for the profit the lender makes on the loan. Margins are fixed for the term of the loan. (interest rate = index + margin)
- Adjustment frequency reflects how often the interest rate changes – also known as the reset date. Most ARMs adjust annually, but some ARMs adjust as often as once a month or as infrequently as every five years. The Doctor Loan has a annual adjustment beyond the fixed set term.
- The initial interest rate is the interest rate paid until the first reset date. The initial interest rate determines your initial monthly payment, which the lender may use to qualify you for a loan. Often the initial interest rate is less than the sum of the current index plus margin so your interest rate and monthly payment will probably go up on the first reset date.
- Interest rate caps put limits on interest rates and monthly payments.An initial adjustment cap limits how much the interest rate can change at the first adjustment period.
If your ARM has a 1% initial adjustment cap, your interest rate may only increase or decrease by a maximum of 1% at the first adjustment period.
- A periodic adjustment cap limits how much your interest rate can change from one adjustment period to the next. The Doctor Loan has a one-year adjustable rate mortgage beyond the fixed set term and will have a 2% percent periodic adjustment cap.Example:
Our Doctor Loan has a 2% periodic adjustment cap, your interest rate may only increase or decrease by a maximum of 2% per adjustment period. A lifetime cap sets the maximum and minimum interest rate that you may be charged for the life of the loan. The Doctor Loan ARMs have caps of 5% above the initial interest rate.
- Example:If your loan has a 5% lifetime cap, your interest rate may only increase or decrease by a maximum of 5% for the life of the loan. Initial adjustment caps, periodic adjustment caps, and lifetime caps make up an adjustable rate mortgage’s cap structure, and are usually represented as three numbers:
Example and most common Doctor Loan:
5 / 2 / 5 = Initial adjustment cap is 5%/ periodic cap is 2% and lifetime cap is 5%.
The Doctor Loan is offered in the following States:
Presently offering 100% financing within: Alabama, Arkansas, Colorado, California, Delaware, Florida, Georgia, Illinois, Indiana, Texas, Tennessee, Mississippi, South Carolina, North Carolina, West Virginia, Virginia, D.C., Maryland, and Pennsylvania.
Please complete the simple Quick Approval featured on our Home Page of this web site so we can place one of our Sr. Mortgage Officer’s in touch with you within 1 hour!
Doctor Mortgage Alliance has received high rankings for our ability to ensure that Doctor’s receive only the very best in terms including low rates, low fees and outstanding customer service.
Thank you for considering Doctor Mortgage Alliance!