What Is the Rule on Interest Rate Adjustment Notices?

If you have an adjustable-rate mortgage (ARM), federal rules require your servicer to warn you before your rate and payment change. The servicer must deliver or mail the first notice 210 to 240 days (about 7 to 8 months) before the first payment at the new rate is due, and it estimates your new rate and payment and lists your options. After that, it must send a notice 60 to 120 days (about 2 to 4 months) before the first payment at a new amount each time a rate change alters your payment. ARMs with terms of one year or less are exempt from both notices.

When should you receive an interest rate adjustment notice?

Each window is counted backward from the due date of the first payment at the new rate, not counting any grace period. The servicer must deliver the notice or put it in the mail inside the window, not before it opens or after it closes.

Example: Your 5/1 ARM's first payment at the adjusted rate is due July 1, 2027. The initial notice must be delivered or mailed between November 3, 2026 and December 3, 2026. The payment change notice for that same adjustment must go out between March 3, 2027 and May 2, 2027.

For the first reset, then, you generally receive two notices. The initial notice can use an estimated rate and payment, because the index value that sets your new rate may not be known that far ahead. When it uses an estimate, it must label it as one and tell you that the actual figures will follow 2 to 4 months before the change. The payment change notice uses the actual new rate and payment.

Two situations change the timing:

• Your first adjusted payment is due within 210 days after closing. You receive the initial notice at closing. If the rate in that notice was not an estimate, no separate payment change notice is required for the first adjustment.
• Your ARM adjusts every 60 days or more often. The payment change notice window is 25 to 120 days before the first payment at the new amount.

After the first adjustment, a rate change that leaves your payment the same requires no notice, and servicers no longer send an annual notice in years without a payment change.

What must the initial notice include?

The initial notice must be a separate document and must include:

• the date of the notice;
• a statement that your current rate period is ending, the date your rate and payment change, the schedule of later adjustments, and any other loan terms that change on the same date;
• a table of your current and new interest rate and payment, and the due date of the first new payment;
• how your rate is set: the index (a published market rate your loan tracks) and the margin (a fixed number of percentage points the lender adds to the index);
• any caps (limits on how much your rate or payment can rise) and any foregone increase, which is a rate increase the caps kept the lender from applying now that it can add at a later adjustment, with the earliest date it could apply;
• how the new payment was calculated, including the expected loan balance and remaining term;
• a statement if the new payment will cover only interest or will not reduce your balance;
• whether a prepayment penalty applies and when;
• a phone number to call the servicer if you expect trouble making the new payment;
• a short explanation of alternatives: refinancing, selling the home, modifying the loan, or arranging forbearance (a temporary pause or reduction in payments);
• the CFPB or HUD website for finding housing counselors, HUD's toll-free number, (800) 569-4287, and where to find your state housing finance agency.

If you have an interest-only loan or one that can negatively amortize (grow because payments do not cover the interest), the table also shows how much of the payment goes to principal, interest, and escrow.

What must each later payment change notice include?

The payment change notice repeats the core financial details, using actual numbers:

• the date your current rate period ends, when the rate and payment change, and any other terms changing that day;
• a table of your current and new rate and payment and the due date of the first new payment;
• the index, margin, and where you can look up the index;
• your rate and payment caps and any foregone increase;
• how the new payment was calculated, including your expected balance and remaining term;
• the interest-only or non-amortizing statement, if it applies;
• any prepayment penalty.

It does not have to repeat the hardship phone number, the list of alternatives, or the housing counselor contacts. Those appear only in the initial notice, so keep it.

Which loans are covered?

The rule covers ARMs secured by your principal dwelling, whether you used the loan to buy the home or to refinance. It does not cover a home equity line of credit (HELOC), which is open-end credit, or an ARM on a rental or second home that is not your principal dwelling. If your ARM converts to a fixed rate and the conversion changes your rate and payment, you get a payment change notice.

There is no small-servicer exemption. Any servicer of a covered ARM must send these notices, though you only need to receive one notice each time, not one from both the lender and the servicer.

What should you do after receiving a rate change notice?

1. Check the math against your loan documents. The Adjustable Interest Rate (AIR) table on page 2 of your Loan Estimate shows the index, margin, and limits on rate changes. The new rate should equal the index plus the margin, limited by the caps. The CHARM booklet notes that an ARM's rate is generally never lower than the margin.
2. Budget for the new payment starting with the due date in the notice. Your monthly statements will also show the date after which your rate may next change, as required by the periodic statement rule.
3. Compare refinancing. Seven to eight months of notice gives you time to shop for a fixed-rate or new ARM loan before the higher payment starts. What it means to refinance explains the costs, and the pros and cons of ARMs can help you decide whether to keep an adjustable rate. Check the notice for a prepayment penalty first.
4. Call your servicer early if you cannot afford the new payment. Use the number in the initial notice and ask about a loan modification or forbearance before you miss a payment.
5. Get outside help. A HUD-approved housing counselor can review your options. Call HUD at (800) 569-4287 to find one, and ask about any fee before you start.

What loan servicing is explains the rest of your servicer's duties, including statements, escrow, and loss mitigation.