source:
  type: guide
  id: hud-4000-1-iii-a-adjustable-rate-mortgages
  authority: FHA Single Family Housing Policy Handbook 4000.1, Part III — a. Adjustable
    Rate Mortgages (06/30/2023)
  description: FHA Single Family Housing Policy Handbook 4000.1, Part III — a. Adjustable
    Rate Mortgages (06/30/2023).
  coverage_tier: operative
obligations:
- id: hud-4000-1-iii-a-adjustable-rate-mortgages-full
  canonical_id: hud-4000-1-iii-a-adjustable-rate-mortgages-full
  section: FHA Single Family Housing Policy Handbook 4000.1, Part III — a. Adjustable
    Rate Mortgages (06/30/2023)
  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 III — a. Adjustable
      Rate Mortgages (06/30/2023)
    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: 'a. Adjustable Rate Mortgages (06/30/2023) i. Definitions The
      Change Date is the effective date of an adjustment to the interest rate, as
      shown in Paragraph 4(A) of the model Adjustable Rate Note form. The Initial
      Index Figure is the most recent figure available before the Closing Date of
      the Mortgage. The Current Index Figure is: • the most recent index figure available
      30 Days before the date of each interest rate adjustment, for Mortgages closed
      before January 10, 2015; and • the most recent figure available 45 Days before
      the date of each interest rate adjustment, for Mortgages closed on or after
      January 10, 2015. ii. Adjusting the Interest Rate on an ARM To set the new interest
      rate on an ARM annually, the Mortgagee must review the mortgage documents containing
      interest rate provisions, and: • determine the change between the Initial Index
      Figure and the Current Index Figure; or • add a specified margin to the Current
      Index Figure. Once the new adjusted interest rate is calculated, the Mortgagee
      must provide notice of the change to the Borrower. (A) Interest Rate Transition
      from LIBOR Index to SOFR Index For adjustable interest rate Mortgages indexed
      to the London Interbank Offered Rate (LIBOR), Mortgagees must transition the
      Mortgage from LIBOR to the applicable Refinitiv United States Dollar (USD) IBOR
      Consumer Cash Fallback (Refinitiv) Secretary-approved spread-adjusted Chicago
      Mercantile Exchange (CME) Term SOFR tenor replacement index as indicated in
      the table below to calculate the periodic adjustments to the mortgage interest
      rate: Existing FHA-Insured LIBOR-indexed Forward ARM Secretary-Approved Replacement
      Index 1-, 3-, 5-, 7-, 10-Year Forward ARMs 12-Month CME Term SOFR (Refinitiv
      Instrument Code USDCFCFCTSA1Y=) The approved Refinitiv 12-month CME Term SOFR
      replacement index is found at: https://www.lseg.com/en/ftse-russell/benchmarks/usd-ibor-cash-fallbacks.
      III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward
      Mortgages 3. Programs and Products - Adjustable Rate Mortgages (06/30/2023)
      Handbook 4000.1 1340 Last Revised: 11/26/2025 Existing FHA-Insured LIBOR-indexed
      Forward ARM Secretary-Approved Replacement Index Note: When downloading historical
      SOFR rates from Refinitiv, Mortgagees must use the “All-In” CME Term SOFR Rate
      and select the “Feature” (No Floor). The Mortgagee must include a notification
      to the Borrower of the transition from the LIBOR index to the 12-Month CME Term
      SOFR replacement index in the ARM Adjustment Notice in accordance with the mortgage
      documents. The Mortgagee must calculate the interest rate for each subsequent
      adjustment to the Mortgage using the 12-Month CME Term SOFR replacement index.
      (B) Determining the Current Index Figure on an ARM The table below describes
      the Current Index Figure to use based upon the day of the week on which the
      30th Day falls. When the 30th Day falls on a … AND the 30th Day prior to a Change
      Date… Then use the index figure issued on… Monday that is a business day and
      the issue date of an H.15 release both occur on the same day (that is, they
      both occur on a Monday) that Monday. Monday that is a federal holiday falls
      on a Monday that is a federal holiday the prior week. day of the week other
      than Monday n/a the Monday of that week (or issued on Tuesday, if Monday is
      a federal holiday). (C) Determining the Calculated Interest Rate on an ARM The
      calculated interest rate is the current index plus the margin (the number of
      Basis Points (bps) identified as “margin” in Paragraph 4(C) of the model Adjustable
      Rate Note), rounded to the nearest 1/8th of one percentage point (0.125 percent).
      (D) Determining the New Adjusted Interest Rate on an ARM To determine the new
      adjusted interest rate, the Mortgagee must compare the calculated interest rate
      to the existing interest rate in effect for the preceding 12 months. (1) Calculated
      Rate is Equal to Existing Rate If the calculated interest rate is equal to the
      existing interest rate, then the new adjusted rate is the same as the existing
      interest rate. III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing
      Programs Forward Mortgages 3. Programs and Products - Adjustable Rate Mortgages
      (06/30/2023) Handbook 4000.1 1341 Last Revised: 11/26/2025 (2) Calculated Rate
      is Less than Existing Rate If the calculated interest rate is less than the
      existing interest rate, then the new adjusted rate is: • the calculated interest
      rate for 1-, 3-, and 5-year ARMs if the calculated interest rate is less than
      one percentage point higher or lower than the existing interest rate; or • the
      calculated interest rate for 5-, 7-, and 10-year ARMs if the calculated interest
      rate is less than two percentage points higher or lower than the existing interest
      rate. (3) Calculated Rate is More than Existing Rate If the calculated interest
      rate is more than the existing interest rate, then the new adjusted rate will
      be: • limited to one percentage point higher or lower than the existing interest
      rate for 1-, 3-, and 5-year ARMs, if the new calculated interest rate is more
      than one percentage point (100 bps) higher or lower than the existing interest
      rate. (Note: index changes in excess of one percentage point may not be carried
      over for inclusion in an adjustment in a subsequent year); or • the calculated
      interest rate for 5-, 7- and 10-year ARMs, if the calculated interest rate is
      more than two percentage points (200 bps) higher or lower than the existing
      interest rate. (Note: index changes in excess of two percentage points may not
      be carried over for inclusion in an adjustment in a subsequent year). (E) Interest
      Rate Adjustments over the Term of the ARM The Mortgagee must not adjust the
      interest rate over the entire term of the Mortgage resulting in a change in
      either direction of more than: • five percentage points (500 bps) from the initial
      contract interest rate for 1-, 3-, and 5-year ARMs; or • six percentage points
      (600 bps) for 5-, 7-, and 10-year ARMs. (F) Effective Date of the ARM Interest
      Rate Adjustment The adjusted interest rate is effective on the Change Date and
      remains in effect until the next Change Date. During the term of the Mortgage,
      the Change Date must fall on the same date of each succeeding year. iii. Computing
      the Monthly Installment Payment after an ARM Adjustment The Mortgagee must determine
      a new monthly payment each time there is an interest rate adjustment. The Mortgagee
      must calculate the portion of the monthly payment attributable to P&I by: III.
      SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages
      3. Programs and Products - Adjustable Rate Mortgages (06/30/2023) Handbook 4000.1
      1342 Last Revised: 11/26/2025 • determining the amount necessary to fully amortize
      the unpaid principal balance for the remaining term of the Mortgage; • crediting
      all eligible prepayments; and • not debiting any delinquency. To calculate the
      monthly installment, the Mortgagee must use the scheduled principal balance
      that would be due on the Change Date but reduced by the amount of any prepayments
      made to the principal. All ARM adjustments affect interest rates only; negative
      amortization is not permitted. iv. ARM Adjustment Notices (A) Standard At least
      annually and before any adjustment to a Borrower’s monthly payment may occur,
      the Mortgagee must provide written notification regarding the adjustment. (1)
      Time Frame (a) For Mortgages Closed before January 10, 2015 If the notice follows
      an adjustment in the monthly payment, the Mortgagee must provide the Borrower
      notice: • at least 25 Days before any adjustment; or • at least 30 Days before
      the adjustment if the mortgage agreement contains a provision stating that 30-Day
      requirement. (b) For Mortgages Closed on or after January 10, 2015 The Mortgagee
      must provide notice in compliance with the time frames set out in TILA. (2)
      Required ARM Notice Content The content of the Adjustment Notice must advise
      the Borrower of: • the new mortgage interest rate; • the amount of the new monthly
      payment; • the current index interest rate value; and • how the payment adjustment
      was calculated. (3) Sending the ARM Adjustment Notice The Mortgagee must send
      the Adjustment Notice to the Borrower: • by Certified Mail, return receipt requested;
      or • by first-class mail to all property owners identified on its records. III.
      SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages
      3. Programs and Products - Adjustable Rate Mortgages (06/30/2023) Handbook 4000.1
      1343 Last Revised: 11/26/2025 (B) Required Documentation The Mortgagee must
      retain the following in the Servicing File: • evidence that timely notice was
      sent to the Borrower; and • annual adjustment computations for the mortgage
      term. (C) Failure to Provide the ARM Adjustment Notice If the Mortgagee fails
      to provide notice to the Borrower for more than one year, then the Mortgagee
      must determine an adjusted interest rate for each omitted year, in order to
      determine the adjusted interest rates for subsequent years, and perform the
      following: (1) Interest Rate Increase If the Mortgagee’s calculations result
      in an increase of the interest rate, the Mortgagee has forfeited their right
      to collect the increased amount and the Borrowers are relieved from the obligation
      to pay the increased payment amount. (2) Interest Rate Decrease If the Mortgagee’s
      calculations result in a decrease of the interest rate, the Mortgagee must refund
      the excess, plus interest from the date of the excess payment to the date of
      repayment, at a rate equal to the sum of the margin and index in effect on the
      Change Date. The Mortgagee must first apply any refund to any existing delinquency,
      and if excess funds remain, the Mortgagee must, at the Borrower’s request: •
      provide the Borrower with a cash refund; or • apply the remaining excess to
      the unpaid principal balance of the Mortgage. (D) Errors in the ARM Adjustment
      Notice HUD requires that errors be corrected if: • the Mortgagee miscalculates
      the interest rate and/or the monthly payment; and • the errors are reflected
      in the notice. v. Commencement of Monthly Payment after ARM Adjustment After
      the Mortgagee gives the Borrower proper notice of the adjustment, the Borrower
      begins paying the new monthly payment 30 Days after the Change Date. III. SERVICING
      AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 3.
      Programs and Products - Adjustable Rate Mortgages (06/30/2023) Handbook 4000.1
      1344 Last Revised: 11/26/2025 vi. Assumptions of ARMs In addition to sending
      the applicable Notice to Homeowner, Release of Personal Liability in Assumptions,
      the Mortgagee must attach a copy of the original ARM Disclosure Statement that
      established the index, margin, and the Change Date. III. SERVICING AND LOSS
      MITIGATION A. Title II Insured Housing Programs Forward Mortgages'
  judgment: false
