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Adjustable Rate Loans

Adjustable Rate Loansor mortgages that do not have a fixed interest rate throughout the life of the loan. The rate can start to change after the initial fixed rate period and usually adjusts annually during the remaining life of the loan.

Adjustable Rate Products (ARMs) are commonly available as follows, although some lenders will may offer slight variations of the frequency in rate change.

Some examples of ARM products are:

1/1 ARM, 3/1 ARM, 5/1 ARM, 7/1 ARM, 10/1 ARM

The first number represents the number of years the loan will be at a fixed initial rate, and the 2nd number represents how often the rate and payments could change after the initial period. The interest rate changes are based on an index rate, such as the rate for Treasury securities, LIBOR, or the Cost of Funds Index.

Adjustable-rate mortgages are a good choice for you if:

  • You are planning to move within the next few years (before the end of the initial rate period) and therefore aren't concerned about possible rate or payment increases
  • You expect your income to rise enough in the coming years to cover any increase in payments resulting from any potential increase to the interest rate
  • You want lower initial monthly payments than a fixed-rate mortgage usually offers
  • You think interest rates may fall in the future - if the ARM rates are lower when your rate adjusts, your rate and payments may also drop accordingly