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Lexington Home Loans's Adjustable Rate Mortgage offers a low rate that is fixed for the first five years. This allows you to purchase (get cash out of your home) and lower your monthly payments at rates you thought had missed:

• The term ARM stands for Adjustable Rate Mortgage
• The 5/1 ARM* is a loan that has a fixed interest rate for the first 5 years, the rates may vary after that
• Adjustable Rate Mortgages are available on a Purchase and Refinance loans
• Lexington Home Loans will work with your realtor during your new home purchase
• Loan to value (LTV) ratios up to 95%
• Low rates, fixed for five years and low monthly payments from Lexington Home Loans.

*Rates may vary by state. In some states, a rate lock fee is required. No cancellation fees apply only to loans without a rate lock. Rates are subject to change without notice. Rates are available on loan amounts up to $333,700 on owner-occupied single family residential properties. Rate is fixed for 5 years and may vary after that. Subject to underwriting approval. Not all applicants will be approved. Full documentation and property insurance required. Loan secured by a lien against your property. Some restrictions apply. Fees, terms and conditions apply. Call for details.

**Fees are based on your loan amount and other loan parameters. As long as your loan amount or loan parameters do not change between the time of application and the time of closing, your fees will not increase from the total quoted amount.

FEATURES

What goes up must come down. And that's basically the principal of ARMs. The interest rate you pay is adjusted from time to time to keep it in line with changing market rates. This means when interest rates go up, your monthly home loan payments may go up. And, when interest rates go down, your monthly loan payments may go down.

Now that might sound frightening if you've ever lived in an era when interest rates shot up dramatically. But Lexington Home Loans's ARMs have built.

ARMs are attractive because they offer start rates that are lower than the interest rates of fixed rate home loans. This typically enables you to begin with lower monthly payments and qualify for a larger loan.

Reasons an ARM might be right for you:

• You are planning to move in a few years and consequently are not concerned about possible rate increases.
• You are confident that your income will rise enough in the coming years to handle any increase in payments.
• You need a lower initial rate to afford to buy the home you want.

With a typically lower mortgage payment, Adjustable Rate Mortgages (ARMs) are an increasingly popular alternative to the conventional fixed rate mortgage for homeowners trying to get the most home for the lowest payment. The downside of the lower payment is a potential increase in the monthly payment over time (if interest rates rise). Therefore, ARMs are most appropriate for people who anticipate an increase in their income during the life of their loan or who plan on moving in five to seven years.

Features of Lexington Home Loans's Adjustable Rate Mortgage Programs:

• Standard 5, and 7 year initial fixed interest period with 30 year terms
• Jumbo 6-month, 5, and 7 year for loans over $417,000 based on county limits
• Payments can be reset once a year, twice a year, or monthly dependent upon the program
• Many ARMs have a "cap" on the amount the mortgage can rise to protect you against dramatic increases in interest rates
• Minimum loan balance must be $150,000
• Maximum loan balance of $2 million

HOW ARMs WORK:

A start rate, also known as the initial interest rate, gives you a special low monthly payment for a set amount of time (such as 1 year).

After the start rate period is over, your interest rate is based on the performance of a financial index

Index

A number is used to compute the interest rate for an adjustable-rate mortgage (ARM). The index is generally a published number or percentage such as the average interest rate or yield on Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM. Some lenders provide caps that limit how much the interest rate or loan payments may increase or decrease.

For a better understanding and a historical perspective, See ARM financial indices.

ARM Financial Indices

Every ARM loan uses a money rate index to determine the loan rate for a set period. Lenders have no control over any of the money rate indices. You can track the performance of each index in The Wall Street Journal. The rate you pay is set at each adjustment period by adding the rate of the index plus your margin (which remains the same from period to period). Below are some common ARMs and the indices on which they're based. (See a graph of how these indices have performed over the last 5 years). Historical performance of ARM indices does not necessarily reflect future performance and is only one factor to consider in choosing a home loan.

Treasury-Indexed ARMs (T-Bills)

Tracks the weekly average yield of U.S. Treasury securities adjusted to a constant maturity of 6 months or one year. Depending on which maturity length you choose, the interest rate on your ARM will adjust once every 6 months or once each year. Per-adjustment caps and lifetime rate caps vary. Ask us for details.

Cost of Funds-Indexed ARMs (COFI)

Adjusts to the actual costs that a particular group of institutions pays to borrow money. The most popular index of this type is the COFI for the 11th Federal Home Loan Bank District. COFI ARMs can adjust every month, every 6 months, or every year, and the per-adjustment caps and lifetime rate caps vary. Many COFI ARMs have a feature called negative amortization. While this may be a good feature for experienced buyers, it is not usually a good choice for the first-time home buyer. Contact your local Lexington Home Loans office for more information.

London Interbank Offered Rate ARMs (LIBOR)

This widely used index tracks the rate international banks charge each other for large loans in the London interbank market. This ARM adjusts to the LIBOR every 6 months. The 6-month LIBOR ARM typically has a per-adjustment period cap 1% and is offered with either a 5% or a 6% lifetime adjustment cap.

• How often payments are adjusted based on the index and how much rates and payments increase at each adjustment which depends on your loan terms. A 6-month ARM adjusts every 6 months. A 1-year ARM adjusts once a year.
• At each adjustment the new rate is computed by adding the margin—a predetermined amount that remains the same for the life of your loan—to your financial index. For Example: If the interest rate for the financial index was 5.5% and your margin 2%, then your rate at the time of adjustment would be 7.5%.
• Two "caps" may put a limit on the maximum amount your rate can increase. The periodic cap sets the maximum your rate can go up from one adjustment period to the next. The life cap sets the maximum interest rate for the life of the loan. See How Caps Work.
• Some ARMs offer a conversion feature that allows you to convert to a fixed rate loan at certain times during your loan.

See Loan Types for special features on Lexington Home Loans ARMs.