source:
  type: guide
  id: hud-4000-1-ii-f-section-251-adjustable-rate-mortgages
  authority: FHA Single Family Housing Policy Handbook 4000.1, Part II — f. Section
    251 Adjustable Rate Mortgages (05/02/2023)
  description: FHA Single Family Housing Policy Handbook 4000.1, Part II — f. Section
    251 Adjustable Rate Mortgages (05/02/2023).
  coverage_tier: operative
obligations:
- id: hud-4000-1-ii-f-section-251-adjustable-rate-mortgages-full
  canonical_id: hud-4000-1-ii-f-section-251-adjustable-rate-mortgages-full
  section: FHA Single Family Housing Policy Handbook 4000.1, Part II — f. Section
    251 Adjustable Rate Mortgages (05/02/2023)
  type: do
  tags:
  - regulator-direct
  - fha
  - hud-handbook
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: FHA Single Family Housing Policy Handbook 4000.1, Part II — f. Section
      251 Adjustable Rate Mortgages (05/02/2023)
    source_class: hud-handbook
    source_url: https://www.hud.gov/hud-partners/single-family-handbook-4000-1
    snapshot_id: 8c03836f77f317e1
    fetched_at: '2026-05-23T00:28:40Z'
    content_hash: sha256:411430f29b13f9b54a2ebb0e6f6e7087ecd2b90d0da22eb0c8c792eaa2d7d0df
    paragraph_quote: 'f. Section 251 Adjustable Rate Mortgages (05/02/2023) i. Definition
      An Adjustable Rate Mortgage (ARM) refers to a Mortgage in which the interest
      rate can change annually based on an index plus a margin. ii. Required Disclosures
      The Borrower must sign a disclosure that explains the terms of the ARM at mortgage
      application. iii. ARM Types The Mortgagee must establish the initial interest
      rate and the margin. The margin must be constant for the entire term of the
      Mortgage. The interest rate must remain constant for an initial period of 1,
      3, 5, 7, or 10 years, depending on the ARM program chosen by the Borrower, and
      then may change annually for the remainder of the mortgage term. A 1- and 3-year
      ARM may increase by one percentage point annually after the initial fixed interest
      rate period, and five percentage points over the life of the Mortgage. A 5-year
      ARM may either allow for increases of one percentage point annually, and five
      percentage points over the life of the Mortgage; or increases of two percentage
      points annually, and six points over the life of the Mortgage. A 7- and 10-year
      ARM may only increase by two percentage points annually after the initial fixed
      interest rate period, and six percentage points over the life of the Mortgage.
      iv. Initial Interest Rate Adjustments The first interest rate adjustment must
      occur in accordance with the following chart: If the ARM is initially at a fixed
      interest rate for ... Then the first adjustment rate change may occur no sooner
      than ... And no later than ... 1 year 12 months 18 months. 3 years 36 months
      42 months. 5 years 60 months 66 months. 7 years 84 months 90 months. 10 years
      120 months 126 months. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title
      II Insured Housing Programs Forward Mortgages 8. Programs and Products - Section
      251 Adjustable Rate Mortgages (05/02/2023) Handbook 4000.1 462 Last Revised:
      11/26/2025 v. Indices The interest rate governing index may be the 1-Year Constant
      Maturity Treasury (CMT) or 30-day average Secured Overnight Financing Rate (SOFR).
      The 1-Year CMT is the weekly average yield on U.S. Treasury Securities, adjusted
      to a constant maturity of one year, as published by the Board of Governors of
      the Federal Reserve System in its statistical release on Selected Interest Rates
      (H.15) at https://www.federalreserve.gov/releases/h15/default.htm. The 30-day
      average SOFR is the compounded average of the SOFR over a rolling 30-day period,
      as administered and published daily by the Federal Reserve Bank of New York
      and available at: https://www.newyorkfed.org\markets\reference-rates\sofr-averages-and-
      index. vi. Temporary Interest Rate Buydowns Temporary interest rate buydowns
      are not permitted with ARM transactions. vii. Underwriting Requirements The
      Mortgagee must underwrite the Mortgage based on payments calculated using the
      initial interest rate. 1-year ARMs If the Loan-to-Value (LTV) is 95 percent
      or more, the Mortgagee must underwrite the Mortgage based on payments calculated
      using the initial interest rate plus one percent. If the Mortgage is less than
      95 percent, the Mortgagee must underwrite the Mortgage based on payments calculated
      using the initial interest rate. viii. Mortgage Term The ARM must be fully amortizing
      over a period of no more than 30 years. ix. Required Documentation (A) Model
      Note The Mortgagee must use the Model ARM Note for all ARMs. Paragraph 1 of
      this form must be adapted or additional paragraphs may be added to provide a
      full description of the adjustable rate feature of the Mortgage to the extent
      required by state or local law to create an enforceable agreement. The Mortgagee
      must ensure that the ARM Note contains amortization provisions that allow for
      annual adjustments in the rate of interest charged. II. ORIGINATION THROUGH
      POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages
      8. Programs and Products - Section 251 Adjustable Rate Mortgages (05/02/2023)
      Handbook 4000.1 463 Last Revised: 11/26/2025 (B) Mortgage Document The mortgage
      documents for an ARM must specify the: • initial interest rate; • margin; •
      date of the first adjustment to the interest rate; and • frequency of adjustments.
      II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing
      Programs Forward Mortgages'
  judgment: false
