# on 5/2/5 Hybrid from BoA, what does it mean - On the first change date, your int can inc/dec by 5%?

I got a 5/2/5 Hybrid ARM from Bank of America.  It has the following clause:
1- On the first change date, your interest rate can increase or decrease by 5%.
2- On each subsequent change date, your interest rate will not increase or decrease by more than 2%.
3- Your interest rate will not increase by more than 5% over the term of the loan.

My question is the 1st clause, "On the first change date, your interest rate can increase or decrease by 5%".  Does this mean that year #6 I could see my interest jump by 5%?  For example, I locked in @ 4.125.  On year #6, Libor index is at 7% + 2% margin.  I could get an interest of 9% instead of the maximum cap change of 2%, which is 4.125+2 = 6.125.

August 24 2009 - US
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• Contributions:4892
You have it exactly right in your post.  If you have a loan that will be adjusting shortly, you can expect the rate to decrease since the current indeexes are very low at this time.

If you are considering a NEW one and you are concerned about what will happen down the road....a 5% increase in year 2014 would indeed be a possibility on a 5/2/5 loan.
August 24 2009
• Contributions:7435
You state your index is 1 yr Libor. Currently it's about 1.37%. Depending how your margin increases or decreases at year six will determine your new payment.

The most it can go up is 5% from your initial note rate. If it did, it could not go any higher. 5% is also your cap. Otherwise the most it can go up after the first adjustment is 2%.

Now, that's perfectly clear, isn't it? .... Best wishes, Rudi
August 24 2009
• Contributions:796
The 5/1 ARM's with the 5/2/5 caps offer much better pricing than the 2/2/6 caps.  Speak with your loan officer to see what the rate would be on the 5/1 ARM with 2/2/6 caps.  I think both have margins of 2.25.
August 24 2009
• Contributions:4454
Yep, pretty much. New loan?
August 24 2009

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