"For amortizing ARM loans, the initial payment is calculated at the initial note rate for the full 360-month term. At the first reset, and at every subsequent adjustment, the loan is recast, and the monthly payment schedule is recalculated using the new note rate and the remaining term of the loan. For example, payments on a five-year hybrid ARM with a 5.5% note rate would initially be calculated as a 5.5% loan with a 360-month term. **If the loan resets to a 6.5% rate after five years (based on both the underlying index and the loan’s margin), the payment is calculated using a 6.5% note rate, the remaining balance in month 60, and a 300-month term.** In the following year, the payment would be recalculated again using the remaining balance and prevailing rate (depending on the performance of the index referenced by the loan) and a 288-month term. In this case, the loan’s initial monthly payment would be $568; in month 60, the loan’s payment would change to $624, or the payment at a 6.5% rate for 300 months on a $92,460 remaining balance." - Fabozzi, Frank J.; Bhattacharya, Anand K.; Berliner, William S. (2009-10-19). Mortgage-Backed Securities: Products, Structuring, and Analytical Techniques (Frank J. Fabozzi Series) (Kindle Locations 425-432). Wiley. Kindle Edition.

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