: You purchased a "starter" home 5 years ago with a loan totaling $100,000 and the loan program you are in is a 5/1 ARM. Your current rate is 3.0% but it is time for an adjustment . Your adjustable rate mortgage terms indicate that on adjustment , your rate cannot increase more than 2% annually or 6% for the life of your loan (what is often called a 2/6 ARM adjustment ). Your ARM's index rate is currently at 1.5%. Your margin for this loan is 2.75%. A) What will your rate adjust to and what is your new monthly payment going to be? B) Let's assume your lender offers you an opportunity to lock your rate going forward at a rate of 3.75% but you have to pay $1,000 for the ability to do this. Disregarding your answer from part A) and assuming you owe $80,000 on the note and will likely move in two years, do you take the bank on its offer? (Remember - the note term is now 25 years not 30 years since you are five years in !)