Reset Rate

AAA

DEFINITION of 'Reset Rate'

The new percentage of interest that a mortgagor must pay on the principal of an adjustable rate mortgage when the reset date arrives and the prescheduled interest rate change goes into effect. The mortgage contract explains when the rate resets and how the new rate is calculated. When the rate resets, the new interest rate may be higher or lower than the initial interest rate depending on market conditions.

INVESTOPEDIA EXPLAINS 'Reset Rate'

Adjustable rate mortgages have a fixed interest rate for an initial period that commonly ranges from one to five years. When this period ends, the interest rate is reset based on a market rate of interest using a benchmark such as the rate of one-year Treasury bonds or the London Interbank Offered Rate. The lender adds an additional percentage to that benchmark rate. The margin rate does not change, but the market rate does.



RELATED TERMS
  1. Reset Date

    The point in time when the initial fixed interest rate on an ...
  2. Secure Option ARM

    A type of payment-option adjustible-rate mortgage with a fixed-interest-rate ...
  3. Fixed-Period ARM

    An adjustable-rate mortgage (ARM) with an initial fixed-interest-rate ...
  4. Hybrid ARM

    A hybrid adjustable-rate mortgage blends the characteristics ...
  5. Payment Option ARM

    A monthly adjusting adjustable-rate mortgage (ARM) which allows ...
  6. Payment Option ARM Minimum Payment

    An option to make minimum payments on an payment option ARM, ...
RELATED FAQS
  1. What do mortgage lenders use the securitization food chain?

    The phrase "securitization food chain" was made popular by director Chris Ferguson in "Inside Job," a film about the 2007-2 ... Read Full Answer >>
  2. Do mortgage escrow accounts earn interest?

    A bank is not required to pay interest on any escrow accounts (also mortgage impound accounts) it holds for its customers. ... Read Full Answer >>
  3. What role did securitization play in the U.S. subprime mortgage crisis?

    The securitization of subprime mortgages into mortgage-backed securities (MBS) and collateralized debt obligations (CDOs) ... Read Full Answer >>
  4. How often is interest compounded?

    Interest can be compounded on any given frequency schedule. Common interest compounding time frames are daily, monthly, semi-annually ... Read Full Answer >>
  5. How does the loan-to-value ratio affect my mortgage payments?

    Several factors affect the mortgage rate you can obtain when you purchase a home. Lenders analyze credit histories and scores ... Read Full Answer >>
  6. What's the difference between a collateralized debt obligation (CDO) and a collateralized ...

    A collateralized mortgage obligation, or CMO, is a type of mortgage-backed security (MBS) issued by an lender that handles ... Read Full Answer >>
Related Articles
  1. Insurance

    ARMed And Dangerous

    In a climate of rising interest rates, having an adjustable-rate mortgage can be risky.
  2. Home & Auto

    Financing Basics For First-Time Homebuyers

    If you're looking to get your first mortgage, there are many financing options available.
  3. Credit & Loans

    Mortgages: Fixed-Rate Versus Adjustable-Rate

    Both of these have advantages and disadvantages depending on your financial needs and prospects.
  4. Home & Auto

    5 Risky Mortgage Types To Avoid

    There are plenty of ways to end up with a bad mortgage. The risks of these five should make every homebuyer think twice before signing.
  5. Credit & Loans

    How Interest Rate Cuts Affect Consumers

    Traders rejoice when the Fed drops the rate, but is it good news for all? Find out here.
  6. Options & Futures

    This ARM Has Teeth

    Find out how to avoid getting bitten when your mortgage rate resets.
  7. Options & Futures

    An Introduction To LIBOR

    This influential rate is published daily in Britain, and felt all around the world.
  8. Credit & Loans

    Is it Worth Saving Up for a Bigger Down Payment?

    There are numerous low-down-payment mortgage options out there, but sometimes it makes sense to build up your savings so you can borrow less.
  9. Credit & Loans

    Is A 30-Year Mortgage Really Best?

    It's the most popular choice, but home buyers with 30-year mortgages may be paying more to finance their home than they need to.
  10. Credit & Loans

    What Are The Pros and Cons Of A 15-Year Mortgage?

    The shorter term, and higher monthly payment, are only part of the picture.

You May Also Like

Hot Definitions
  1. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  2. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  3. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  4. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  5. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  6. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center