Freddie Mac Adjustable-Rate Mortgage
The Freddie Mac Adjustable-Rate Mortgage (ARM) product is ideal if you wish to take advantage of lower short-term rates with prepayment flexibility.
Key Benefits
- Choice of indices: 1-month or 3-month Freddie Mac Reference Bills® index or a 1-month or 3-month LIBOR index.
- Choice of 5-, 7-, or 10-year loan term; up to 80 percent LTV on loans with terms of 7 years or more.
- Interest-only available in some cases.
- Choice of the Freddie Mac Embedded Interest Rate Cap or you may obtain your own cap coverage from a third-party provider. No cap necessary for loans less than 65% LTV1.
- Early spread lock for 60 or 120 days available.
- Convertible to a new Freddie Mac Fixed-Rate mortgage at any time after lockout with streamlined underwriting.
- For acquisition of stabilized properties with 30% cash equity and a 7- or 10-year term, sizing parameters are 1.0x for amortizing and partial interest-only, and 1.20x for full term interest-only.
| Term |
ARM
Loan-
to-
Value |
Minimum
Term for
Borrower-
Provided
Cap |
Maximum
ARM
Proceeds
Compared
to Fixed-
Rate
Proceeds |
Sizing
Requirements:
Amortizing
Minimum
DCR1 |
Interest-Only (IO) Options |
IO
Available?
(Y/N) |
Maximum
IO Period |
Sizing
Requirements:
IO Min. DCR |
| 5-Year |
> 70%
to 75% |
5-year |
< Fixed-rate |
1.05x |
N |
N/A |
N/A |
> 65%
to < 70% |
3-yr w/ escrow2 |
103% |
1.05x |
Y |
Full-term |
1.30x |
| < 65% |
No cap |
105% |
1.05x |
Y |
Full-term |
1.30x |
| 7-Year |
> 75%
to 80% |
7-year |
< Fixed-rate |
1.05x |
Partial |
2-year |
N/A |
> 70%
to < 75% |
4-yr w/ escrow2 |
103% |
1.05x |
Partial |
2-year |
N/A |
> 65%
to < 70% |
4-yr w/ escrow2 |
105% |
1.05x |
Y |
Full-term |
1.30x |
| < 65% |
No cap |
105% |
1.05x |
Y |
Full-term |
1.30x |
| 10-Year |
> 75%
to 80% |
10-year |
< Fixed-rate |
1.05x |
Partial |
2-year |
N/A |
> 70%
to < 75% |
5-yr w/ escrow2 |
103% |
1.05x |
Partial |
5-year |
N/A |
> 65%
to < 70% |
5-yr w/ escrow2 |
105% |
1.05x |
Y |
Full-term |
1.30x |
| < 65% |
No cap |
105% |
1.05x |
Y |
Full-term |
1.30x |
Prepayment Provisions
You can choose from three prepayment provisions when structuring Freddie Mac Standard, capped or uncapped ARMs. Each option offers no prepayment premium for the last 90 days of the loan term.
| Option One |
| Year |
Prepayment Premium |
| 1 |
Locked out |
| 2 & beyond |
1%; waived if converted to new fixed-rate loan |
|
| Option Two |
| Year |
Prepayment Premium |
| 1 |
3% |
| 2 |
2% |
| 3 & beyond |
1% |
| > 4 |
Waived if converted to new fixed-rate loan |
|
| Option Three |
| Year |
Prepayment Premium |
| 1 |
5% |
| 2 |
4% |
| 3 |
3% |
| 4 |
2% |
| 5 & beyond |
1% |
| > 6 |
Waived if converted to new fixed-rate loan |
|
1For sizing purposes, use maximum note rate based on "strike" rate. For uncapped loans, use 6% as the maximum note rate (for sizing only). The underwriting maximum note rate for uncapped ARMs will be reviewed quarterly and is subject to change based on market conditions.
2Escrow calculated based upon projected cost of existing cap rate multiplied by 125% using the original "strike" rate. Escrow analyzed and resized each year during annual escrow analysis. Cap escrow may increase as a result of the annual analysis.
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