Study notes. AI-assisted reference for NMLS SAFE exam prep — verify against primary sources (CFR, statute, CFPB) before relying on it. Not legal advice.
24 CFR 203.49 (Eligibility of FHA Adjustable Rate Mortgages)
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24 CFR 203.49 governs the eligibility of Adjustable-Rate Mortgage (ARM)s (ARMs) for Federal Housing Administration (FHA) insurance, detailing specific requirements for interest rate adjustments and caps. This regulation falls under the purview of the Federal Housing Administration (FHA).
Key Provisions
- Interest Rate Adjustment Limits:
- For one- and three-year ARMs, no single adjustment can exceed one percentage point (1%) in either direction from the preceding rate. The lifetime cap for these ARMs is five percentage points (5%) from the initial rate,.
- For five-, seven-, and ten-year ARMs, no single adjustment can exceed two percentage points (2%) in either direction. The lifetime cap for these ARMs is six percentage points (6%) from the initial rate.
- Index Translation: At each adjustment date, changes in the underlying index must be accurately translated into the adjusted mortgage interest rate, subject to any minimum change limitations.
These provisions are designed to protect borrowers with FHA-insured ARMs from excessive and sudden increases in their interest rates, providing a degree of predictability and stability.
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