GMFS offers Conforming and Jumbo Conventional Adjustable Rate Mortgages (ARMs) in three terms — 5/6, 7/6 and 10/6 — all indexed to the 30-day average SOFR with a 2.75% margin.

The Three ARMs at a Glance

True for All Three ARMs

• Index is the 30-day average Secured Overnight Financing Rate (SOFR).
• Margin is 2.75%. The rate can never go below the margin.
• Subsequent adjustments are capped at 1% and lifetime adjustments at 5% over the initial note rate.
• Not convertible to a fixed rate. No interest-only option.

The ARM term tells you how long the rate is fixed before its first adjustment, and how often it adjusts afterward. The first number is the fixed period in years; the "/6" means the rate adjusts every six months after that.

Shorter adjustment periods are available in the marketplace, but GMFS offers these terms because they are the most liquid, common and competitive for your borrower.

Every ARM is tied to an index. There are many — CMT, Treasury Bill, MTA, COSI, COFI and more — published weekly, every six months or yearly.

SOFR — Secured Overnight Financing Rate. GMFS uses the 30-day average SOFR because it is the most widely used index in the industry, which lets us offer the most competitive price.

Caps limit how much the interest rate can change at each adjustment and over the life of the loan. They are written as initial / subsequent / lifetime.

Worked Example — 5/6 ARM at 4.00%

1. 01
   First adjustment (month 60)The rate can move up or down by no more than 2% from the 4.00% note rate. Worst case it rises to 6.00%; best case it falls to 2.75% — the margin floor stops it from reaching 2.00%.
2. 02
   Every 6 months afterThe rate can move up or down by no more than 1% from whatever the current rate is at that time.
3. 03
   Over the life of the loanThe rate can never exceed 9.00% (4.00% + 5%) and can never fall below the 2.75% margin.

The margin is added to the index to set the new interest rate at each adjustment. GMFS uses a 2.75% margin — you may see other margins in the marketplace, but this is the most common.

How the New Rate Is Calculated

1. 01
   Take the indexUse the 30-day average SOFR in effect for the change date (see the look-back period in Section 6).
2. 02
   Add the marginIndex + 2.75% margin.
3. 03
   RoundRound to the nearest 0.125%.
4. 04
   Apply the capsThe new rate is limited by the applicable cap and can't go below the 2.75% floor.

Illustrative only. The 0.23% index value is from the April 2022 source example and is not a current SOFR value.

Look-Back Period

The look-back period sets which index value is used on each change date. GMFS uses the index published 45 days before the change date. This is typical, and it gives the servicer time to send the borrower the new payment and paperwork.

Example — If the payment is due to change on October 1, the index value from around August 15 is used to calculate the new payment. That rate then holds until the next change date six months later, when the process repeats.

Product Restrictions

• Not convertible — these loans cannot be converted to a fixed rate at any time.
• No interest-only — GMFS does not offer an interest-only ARM.

1. 01
   Open the ARM fieldsIn the RegZ - LE screen, go to the Adjustable Rate Mortgage section.
2. 02
   Select Get IndexClick Get Index. Encompass pulls in the correct current index value.

Questions? Contact your GMFS Mortgage manager or the Lock Desk. This guide is a summary for licensed mortgage professionals; refer to the GMFS Product Guide for complete requirements.