Lesson 9 of 25 · 7 min
A fixed loan and an adjustable loan through two rate increases
Two policy increases can pass a line, miss a fixed mortgage, and reach an ARM only later.
Two policy increases, stacked, still arrive on three different clocks. Both housing loans start on Ilex Lending's $248,900 at 5.40 percent, payment $1,397.65. The home equity line is still $36,400. The two moves are +0.75 then +0.50. Track 12 lesson 7's reset cadence decides which of those prints any given facility has looked up.
The line was 6.80 percent. After the first move it is 7.55 percent. After the second it is 8.05 percent. Monthly interest runs $206.27 → $229.02 → $244.18. Extra cash after both is $244.18 − $206.27 = $37.91 a month, $455 a year. Both increases passed through, because both arrived on cycles the line actually had.
The fixed mortgage is still $1,397.65 after both increases. Its r was locked. The ARM 5/1 is still $1,397.65 through both increases, because month 60 has not arrived. At month 60 the index is the original 2.65 percent plus 0.75 plus 0.50 = 3.90 percent, the rate is 6.65 percent, and the payment is $1,573.42 on the remaining $229,827.56. The two increases reach the ARM as one reset, on the date the loan wrote, not as two household events in the months they were decided.
Three products, one pair of policy prints, three arrivals. The line took both, quickly. The fixed loan took neither. The ARM took their sum, later, as a single substitution. Cadence is not a detail of the rate. It is which months the extra cash actually leaves.
A policy path is a sequence of prints. A facility is a sequence of lookups. Those two sequences are not required to match.
Key terms
- Stacked increases
- Two policy moves in sequence. Each facility absorbs them on its own lookup dates, not on the decision dates.
- Pass-through on a line
- Both moves appearing in the line's rate because both arrived on cycles the line had.
- Deferred sum on an ARM
- Two policy moves arriving as one reset, added into the index the agreement looks up at month 60.
Worked example
Two prints, three clocks
Ilex Lending. Both mortgages $248,900 at 5.40 percent, payment $1,397.65. Line $36,400. Policy moves +0.75 then +0.50.
- Line, 6.80% → 7.55% → 8.05%
- $206.27 → $229.02 → $244.18
- Fixed mortgage after both
- $1,397.65
- ARM through both, before month 60
- $1,397.65
- ARM at month 60
- $1,573.42
Extra $37.91 a month, $455 a year.
r locked.
Start rate still in force.
Index 2.65% + 0.75 + 0.50 = 3.90%. Rate 6.65% on $229,827.56.
Both increases passed the line, missed the fixed loan, and reached the ARM as one later sum. Cadence wrote those three sentences.
Check yourself
A home equity line of $36,400 moves 6.80 percent → 7.55 percent → 8.05 percent. A fixed mortgage and a 5/1 ARM both started at $1,397.65. After both policy increases, and then at the ARM's month-60 reset to 6.65 percent on $229,827.56, what is each monthly figure?
Two increases can pass a home equity line and miss a fixed mortgage entirely, and reach an ARM only at the date Track 12 lesson 7 calls reset cadence. Open Reset cadence: the question that decides a rising month →
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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.