Initial Interest Adjustable-Rate MortgagesInterest-only payments free cash flow for other investments

With Initial Interest^SM, ARMs increase your origination volume and take advantage of highly competitive Freddie Mac secondary market cash or securities sale options.

With Initial Interest ARMs, your borrowers pay only monthly interest payments for an initial period of the loan, then principal and interest payments for the remainder of the loan term.

Let our suite of Initial Interest ARMs help you source additional mortgage business and meet the needs of more borrowers who are an appropriate fit for this mortgage solution. We offer 3/1, 5/1, 7/1 and 10/1 Constant Maturity Treasury (CMT)- or London Interbank Offered Rate (LIBOR)-indexed Initial Interest mortgage options. Each includes an interest-only period of 3, 5, 7 or 10 years, respectively, then a fully amortizing adjustable-rate period for the remainder of the 30-year term.

We also offer 3/1, 5/1 and 7/1 CMT- or LIBOR-indexed ARMs with a 10-year interest-only period, then a fully amortizing adjustable-rate period for the remainder of the 30-year term.

As with all Initial Interest Mortgages, Initial Interest ARMs are not for all borrowers, and should be offered appropriately only to borrowers who clearly understand and qualify for the potential payment increases.

Product Features

Feature	Requirements
Property Type	1-unit primary residences, including condos and PUDs. Second homes Manufactured homes and co-ops are not eligible.
Eligible Mortgage Products	3/1, 5/1, 7/1 and 10/1 CMT- or LIBOR-indexed non-convertible ARMs with 3, 5, 7 and 10-year interest-only period. 3/1, 5/1, and 7/1 CMT- or LIBOR-indexed non-convertible ARMs with a 10-year interest-only period. 3/1 ARMs with margins of 400 basis points or more are not eligible for sale under flow purchase paths. Originate with the Financed Permanent Buydown Mortgage and Mortgages for Newly Constructed Homes (Newly Built Home Mortgages – Site-built only) Super conforming mortgages
Transaction Type	Purchase No cash-out refinance
Maximum LTV Ratios (without secondary financing)	Purchase and no cash-out refinance for 1-unit primary residence: 95% LTV Cash-out refinance for 1-unit primary residence: 75% LTV See Guide Chapter L.33.3 for LTV/TLTV/HTLTV ratio requirements for super conforming mortgages
Eligibility/Underwriting	Loan Prospector® Accept Borrower is qualified using monthly housing expense that includes, but is not limited to, the principal and interest payment on the mortgage that is calculated as described in Guide Section 37.15. See Guide Section J33.8 for additional information. For the purpose of qualifying the borrower, the principal and interest payment must be based on a fully amortizing payment schedule for the term of the mortgage Borrower is qualified using payments calculated at the higher of the note rate or the fully indexed rate. The fully indexed rate is the sum of the margin plus a value of the applicable index at any time within 90 days preceding the note date, rounded to the nearest one-eighth of 1%(0.125%). The initial note rate cannot be more than three percentage points below the fully indexed rate. Principal curtailments are permitted at any time. Loan Prospector's Property Inspection Alternative cannot be used.
Execution Options	WAC ARM Cash WAC ARM Guarantor MultiLender Swap
Delivery Fees	A unique Initial Interest Mortgage postsettlement delivery fee will be assessed in addition to all other applicable Exhibit 19 postsettlement delivery fees. See Guide Exhibit 19 for details on these fees and all other applicable fees.
Special Delivery Requirements	You must represent and warrant that you have implemented processes and controls to ensure that borrowers with Initial Interest Mortgages received written disclosure addressing payment shock, negative amortization (if any), prepayment penalties and the cost of reduced documentation loans, as appropriate, and that such disclosure is provided in a timely manner as discussed in the Interagency Guidance. You must deliver all mortgage data required by Form 13SF, including Date of First P&I Payment, Monthly P&I Payment, Reference Code 0012 and Modification/Conversion Date.
*Single-Family Seller/Servicer Guide*	Refer to Guide Chapter J33.

Download an Initial Interest ARM fact sheet for more details.

Lender Benefits

Initial Interest ARMs help you:

Expand your product line and increase your origination volume.
Sell servicing-retained for cash through the WAC ARM Cash execution, or take advantage of the balance sheet and other benefits of a WAC ARM Guarantor securities execution.
Streamline the process for you and your borrowers by assessing Initial Interest ARMs through Loan Prospector.

Benefits for Your Borrowers

Initial Interest ARMs* help your borrowers:

Minimize financing costs for the short-term for those who do not plan to stay in the house past the interest-only period.
Make principal curtailment payments during the interest-only period to increase their home equity.

* If the Initial Interest ARM also includes a prepayment penalty provision, the borrower should understand that selling, refinancing or making a payment on the mortgage principal during the prepayment penalty period may reduce or eliminate the benefits of the Initial Interest ARM.

For More Information

Call your Freddie Mac representative.
Print out an Initial Interest ARM fact sheet.

Training Opportunities

Training Events Workshop Web Event
Mortgage Products: More Choices for More Borrowers - 1 day

The information in this document is not a replacement or substitute for information found in the Single-Family Seller/Servicer Guide and/or the terms of your Master Agreement and/or Master Commitment.