Can the Interest Rate on an ARM Be Rounded Up?
June 8, 1998, Reviewed February 12, 2011

"The interest rate on my adjustable rate mortgage changes every year based on changes in a rate index. This year I decided to check out my new rate of 7.75% and found that the index plus the margin of 2.5% added up to only 7.52%. When I asked about it I was told that the rate was rounded up to the nearest .25%. Was I hornswoggled?"


Maybe, but there isn’t much you can do about it at this point except to refinance your mortgage, which may or may not be advantageous for you.

Many adjustable rate mortgage (ARM) contracts round the rate on an adjustment date to the nearest one-eighth or one-quarter of 1 percent, but you got stung with a contract that rounds to the next highest one-quarter. Rounding up in this way increases the effective margin on your loan from 2.5% to about 2.625%.

As consolation, many ARMs that don’t round up have margins of 2.75%, so you didn’t do so badly. Next time remember to read the small print!
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