We offer a 2/2, 3/1 or a 5/1 adjustable rate mortgage tied to the cost of funds index, a 3/1, 5/1, or 7/1 ARM tied to the LIBOR index.
Three Different Indexes We Utilize With Our ARM Loans
- 11th District Cost of Funds
The weighted average of the cost of borrowings (funds) to member banking institutions of the Federal Home Loan Bank of San Francisco (our most popular ARM loan) is a very slow moving index that reacts to market changes on a much slower scale.
- LIBOR (The London Interbank Offered Rate)
The LIBOR is the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London. It is a standard financial index used in U.S. capital markets and can be found in The Wall Street Journal.
- Treasury Bill (T-bill)
The T-bill is the return on investment, expressed as a percentage, on the U.S. government's debt obligations (bonds, notes and bills). Looked at another way, the Treasury yield is the interest rate the U.S. government pays to borrow money for different lengths of time.
What's Important to Consider With an ARM Loan
Margin: A fixed percentage rate that is added to an index value to determine the fully indexed interest rate of an adjustable rate mortgage (ARM). The margin is constant throughout the life of the mortgage, while the index value is variable.
Caps: There are typically two types of caps on adjustable rate loans. The first is the adjustment cap that keeps the current rate from exceeding a certain limit each adjustment period. The second cap is the lift cap. This lifetime cap is usually expressed as a percentage increase from an initial interest rate, which will tell you the maximum interest rate for the life of your adjustable loan.
When & Why You Should Go With This Type of Loan
An ARM loan is good if you are planning to be in this home for a shorter amount of time. If your plan is to be at that home for 5 to 7 years, then a 5/1 ARM loan would work perfectly. ARM loans are typically lower than the standard 30-year fixed loan and for the shorter term, you can own that home for less money.
Common Questions About Adjustable Rate Mortgage Loans
If I choose an ARM loan, won’t my rate jump real high when it adjusts?
All of our ARM loans have adjustment and life caps which prevent the rate from increasing substantially with adjustments.