What Is the Rule on Interest Rate Adjustment Notices?

An Adjustable-Rate Mortgage (ARM) is a type of mortgage whose interest rate applicable to the outstanding balance varies throughout the life of the loan. In this case, an ARM will be considered as a closed-end credit transaction in which the annual percentage rate may increase after consummation. In most adjustable-rate mortgages, the initial rate remains fixed for a certain period of time. After that point, it resets periodically (normally yearly or monthly).

If your loan has an adjustable rate, servicers must make disclosures and send notices in the following cases:

  • The initial reset of an ARM, between 210 and 240 days before the first payment is due after the rate first adjusts

  • Each time an interest rate adjustment results in a payment change (ongoing interest rate adjustment notice), between 60 and 120 days before any payment at a new rate is due

Tellus TIP:

ARMs with a term of 1 year or less are exempt from both initial and ongoing disclosures.