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Reset

Reset. ARMs are said to reset when their interest rate is recalculated using a formula specified in the agreement.

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The intent is usually to track market interest rates. Hence, the reference point is usually some widely published average such as the Libor.

However, some mortgage lenders have been known to use teaser rates to attract business. Those rates can be far below market.

Borrowers are urged to fully investigate their interest rates before signing up for an ARM. You need to know what the monthly payments are likely to be when the teaser rate expires.

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