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Adjustable Rate Mortgages (ARM) from the California Mortgage Loan Company

The California Mortgage Loan Company supplies fixed rate refinance and adjustable rate mortgages for California homeowners seeking jumbo home financing. Borrowers throughout Southern California and Silicon Valley continue to utilize the low payment mortgages offered with negative amortization option ARM loans.

In the financing world, Adjustable Rate Mortgages are often referred to as an ARM. Simply put it is the opposite type of mortgage rate as its cousin, the fixed rate mortgage.

Fixed rate home loans carry a mortgage rate that remains the same for the term of the loan. While the interest rate on an adjustable rate mortgage will adjust periodically. The initial interest rate of an ARM is lower than that of a fixed rate mortgage, consequently, an ARM may be a good option to consider if you plan to own your home for only a few years; you expect an increase in future earnings; or, the prevailing interest rate for a fixed rate mortgage is too high.

An ARM has four components: (1) index, (2) margin, (3) mortgage interest rate cap structure, and (4) an initial interest rate period. When the initial interest rate period has expired, the new interest rate is calculated by adding a margin to the index. Your lender will disclose the margin at time of loan application (margins may vary from lender to lender, so it's is a good idea to shop around for a low margin).

As the index figure moves up or down, your interest rate will be adjusted accordingly. FHA insured ARMs use the Constant Maturity Treasury index (weekly average yield of U.S. Treasury securities, adjusted to a constant maturity of one year). Increases or decreases in the interest rate will be limited by the interest rate cap structure of your loan.

The interest rate cap structure provides some protection from large interest rate swings. There are two types of caps: (1) annual, and (2) life-of-the-loan. The annual cap restricts the amount your interest rate can change, up or down, in any given year, while the life-of-the-loan cap limits the maximum (and minimum) interest rate you can pay for as long as you have the mortgage. FHA offers a standard 1-year ARM and four "hybrid" ARM products. Hybrid ARMs offer an initial interest rate that is constant for the 1st 3, 5, 7 or 10 years. After the initial period, the interest rate will adjust annually. Below are the different interest rate cap structures for the various ARM products.

 

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