What type of disclosure is required for adjustable-rate mortgages (ARMs)?

For adjustable-rate mortgages (ARMs), it is essential for lenders to provide disclosures about adjustment terms and rate changes. This requirement is in place to ensure that borrowers fully understand how and when their interest rates may change during the life of the loan. Since ARMs typically have an initial fixed-rate period followed by adjustments based on market indices, borrowers need to be informed about specific details such as the frequency of adjustments, the index used for calculating rate changes, any caps on how much the interest rate can increase, and how the new rate is computed after the adjustment period begins.

Providing clear disclosures on these aspects helps borrowers make informed decisions and prepares them for potential increases in their monthly payments. This transparency is critical because it allows borrowers to assess their financial situations realistically and understand the long-term implications of choosing an ARM over a fixed-rate mortgage.