3/1 interest-only refinance ARM

3/1 interest-only refinance ARM

A 3/1 interest-only refinance ARM (adjustable-rate mortgage) replaces an existing mortgage loan. The minimum payments during the first three years of the new mortgage do not reduce the principal balance. The interest rate remains the same during this period. Thereafter, the mortgage converts to an amortizing loan and the interest rate resets to track with a specified financial index. The rate is then adjusted once annually, based on the movements of the underlying index, and subject to preset limits.