ARM question

[zetta]

Our mortgage is a 10-1 ARM, and the 10 year fixed portion (at 5.125%) expires in 2012. My understanding is that the payments can only adjust once a year. I think I remember that the rate can only go up 1% per year, but I need to check the documents. My question is on the first adjustment -- would it be bound by the 1% rule (making the rate 6.125 max) or does the loan reset to the current value of some index and then only after that is bound by 1% increases? What kind of language should I be looking for in the docs to figure this out?

We haven't yet decided whether to stay in this house or move -- DS starts kindergarten in 2010 and we might want to move to a better school district.

[arthurb999]

It;s usually 1% per year capped at a max of 6%+intro rate.

[scfr]

Go to the back of your mortgage paperwork and look for an Addendum that covers the terms of the ARM.

Whipped out my NOLO "How to Buy A House In California" Book and this is what they say is important to know:

Adjustment Period (aka how often the rate can be adjusted ... dont' assume it's annual ... could be semiannual or monthly), Period Cap (how much they can raise it each adjustment period, Life-of-Loan Cap (self-explanatory), and Index + Margin. According to NOLO, there are a variety of indexes that might be used (US T-Bills, LIBOR, CD, COFI, etc.).