Adjustable rate mortgage (ARM)

Margill Loan Manager (MLM) can easily compute adjustable rate mortgages (or other variable rate loans). In these, the payment is adjusted based on the interest rate in force at a certain date.

Rates known or estimated at start of loan

Loan or mortgage adjusted over time as rates become known

Rates known or estimated at start of loan

Very often in ARMs the future rates are not known but MLM may be used to calculate the predicted schedule. To do so, follow these steps:

A future (predicted) variable interest rate table is created. Go to "Tools", "Rate Tables"

"Clear" the existing table and enter the date and rate changes. In this example, the rate in 2006 is 5.00%, 2007: 5.5%, 2008: 6.0, etc. Press on to add the dates and rates.

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Save the file in order to use it as seen below. We called it "File123-ARM" as seen in the complete table below:

Create a new Record with "File" and "New Record".

Enter the various elements. For "Payment Method" choose "Rate Adjusted Payments". In order to be able to choose this, you must have checked "Use Interest Table" and have selected an interest table, in this case "File123-ARM". A percentage could have been added on top of the rates entered earlier.

Press on "Compute". The window below will appear since the calculation is quite complex. Press on OK. With today's computers and "dual core" technology, the calculation above took about 15 seconds.

The payments are then automatically adjusted according to the rates. The payments will vary to first cover (refund) interest and the balance of the payment to refund the principal. See the "Payment" column below from the Results table.

Loan or mortgage adjusted over time as rates become known

If a loan starts at a certain interest rate, lets say 5% and the next year the rate jumps to 6%, the Results table (Payment schedule) may be updated to reflect this change.

So we created a standard loan at 5% mortgage with a Normal "Payment Method" and an unknown payment (0.00).

We "Compute" and produce a schedule which is saved. One year later, the rate changes to 6% thus the need to recompute the payments for the remainder of the mortgage. We select all lines starting Nov. 1, 2007 (shift and down to the end of the table).

With the right click of the mouse "Interest Rates" and "Modify Rate - Selected Lines" we change the rate to 6% and again with the right click of the mouse (see below) with "Payments" and "Payments Adjusted for Balance = 0.00" the new payment will be computed.

The new payment, equal for the rest of the table, will appear for all lines selected. The rate increase thus increases our payment from 1023.03 to 1124.29.

This process, along with other special repayment options (lump sum payments, unpaid payments, interest-only payments, fixed principal payments, step payments, additional principal, etc.) may be continued over time.