Deferred interest

On an Adjustable Rate Mortgage (ARM) with a low initial rate and deferred interest, the payment cap keeps the initial monthly payment the same and low typically for the first year.

Although the minimum payment amount changes typically once every 12 months, interest rate changes may occur each month and are limited only by the lifetime rate cap.

After the low initial rate expires, interest accrues at the fully indexed rate. Any difference between the borrower's actual payment and the interest accrued is added to the loan balance, thereby deferring the payment of interest.