This page is dedicated to Frank Blair
What is Fully Indexed
Rate (FIR)?
The fully indexed rate
(FIR) is the
actual rate of your adjustable rate mortgage calculated by adding up
the ARM index your mortgage is tied to and the lender margin.
Most ARM
loans are advertised with only the starting rate, especially Option
ARMs. Often, the fully indexed rate (FIR) will not be disclosed at all
if the borrower does
not specifically request it.
How to calculate the
fully indexed rate (FIR)?
You should know what ARM
index your
ARM is tied to. It could be LIBOR, COSI, COFI or MTA - some of the most
popular ARM indexes. Take the ARM index, add the
lender margin and you
will arrive at your adjustable rate mortgage fully indexed rate (FIR).
To identify your fully
indexed rate
(FIR), ask the lender to provide the ARM index they are using plus
their margin, and a source you could use to follow this particular
ARM
index you will be using. Just make sure the lender points out in
writing which particular ARM index they are using as there could be
1-month LIBOR, or 1-year CMT.
Should I know the
fully-indexed rate (FIR) on my ARM?
The fully indexed rate
(FIR) is
important to know if the rate will be adjusted within months, or sooner
than the homeowner plans to move out. If the first adjustment occurs
after 3 or more years, it may not be as important to know, especially
if you are planning to sell or refinance within that time.
There are some ARMs with
starting ARM
rate of, say, only 1.5%. However, this rate will usually last for no
longer than 1 to 3 months, in which case the ARM rate will
adjust to
the fully indexed rate (FIR) very soon. You should inquire about the
FIR, if the initial rate is set suspiciously low in order to avoid
quick payment shock.
_______________________________________________________________________________________________________________________________________________________
Consumer Guide on Adjustable Rate
Mortgages
by The Federal Reserve
Board
