How and when must the mortgage servicer notify me of payment changes on my adjustable rate mortgage?

Question

I recently bought a home and took out an adjustable-rate mortgage (ARM). I understand this means the interest rate can change, which can make the payments go up or down. How will I know when my payment amount changes?

Answer

You'll get a notice before the interest rate initially adjusts, and before each subsequent interest rate adjustment, letting you know that the payment is changing.

The Creditor or Servicer Must Send You Interest Rate Adjustment Notices

Under federal mortgage servicing law, the creditor or servicer must send you a notice when your payment changes due to an interest rate adjustment. (12 C.F.R. § 1026.20).

What is a creditor? The "creditor" is the owner of the loan. The creditor might be the original lender or a subsequent owner of the loan.

What is a mortgage servicer? Mortgage servicers process loan payments and manage loan accounts on behalf of the owner of the loan.

Notice Required the First Time the Interest Rate Changes

The first time the interest rate adjusts, the creditor or servicer must send you a notice at least 210 days, but not more than 240 days, before the first payment at the new adjusted level is due.

Notice Required for Subsequent Interest Rate Changes

If your ARM has already reset once, in most cases, you'll get a notification two to four months before the first payment at the new rate is due, assuming the reset will change your payment amount.

Exceptions to the Notice Requirements

The creditor or servicer doesn't have to send a rate adjustment notice in the following situations.

• ARMs with terms of one year or less. The creditor or servicer doesn't have to send a notice when the rate initially or subsequently adjusts if the adjustable-rate mortgage has a term of one year or less.
• The first adjusted payment is within 210 days after consummation of the loan. A rate adjustment notice is not required if the first payment at the adjusted level is due within 210 days after consummation of the loan and the creditor disclosed the new interest rate at consummation. ("Consummation" occurs when you become contractually obligated on the loan.)
• You send a cease communication notice to the servicer. If the servicer is subject to the Fair Debt Collection Practices Act (FDCPA), and you send a written notice to the servicer to cease communication with you, it does not have to send ongoing notices of rate adjustments. (It still must send a notice about the initial interest rate adjustment.)