In the absence of cups, adjustments on an ARM loan would be determined solely by:

In the context of an Adjustable Rate Mortgage (ARM) loan, the fully indexed rate plays a crucial role in determining adjustments when specific parameters, such as the cups (the limits on how much the interest rate can adjust at each adjustment period), are absent. The fully indexed rate is derived by adding the index rate, which fluctuates according to market conditions, and the margin, which is a fixed percentage that the lender adds to the index.

When cups are not present, the fully indexed rate directly influences the interest adjustments, as it reflects the total interest that will apply to the loan for the next period. Since the index indicates current market trends and the margin represents the lender’s profit, this combined rate shows how much the interest on the ARM will increase or decrease, ensuring that borrowers stay informed about their payment changes based on market movements.

Understanding this mechanism allows borrowers and lenders alike to anticipate how adjustments will be made to the ARM, thereby highlighting the importance of the fully indexed rate in the absence of any other limiting factors like caps on the adjustments.