There are a few basic things to know about adjustable rate mortgages before choosing the best mortgage for you. In contrast to the set costs of fixed rate mortgages (FRMs), the interest on California adjustable rate mortgages (ARMs) is flexible, moving up or down in accordance with a number of indexes. The majority of the indexes are published interest rates, such as the one-year U.S. Treasury bill. The interest rates of California adjustable rate mortgages are determined by the margin a lender adds to the amount, usually two to four points.
At Park Place Real Estate Company, we can help you decide if an adjustable rate mortgage is the right choice for you. The process for California adjustable rate mortgages follows two phases. In the initial phase, the ARM is fixed, as it would be with a fixed rate mortgage. However, while FRM interest remains stable throughout the duration of the loan, an ARM only remains fixed for a specified amount of time. Once the fixed interest period is over, the interest rate of an ARM can fluctuate, winding up either higher or lower than the original rate, as determined by the indexes. We can walk you through the current market to see if an ARM is your best option. Many people save a significant amount of money over the life of their mortgage by choosing an adjustable rate.
Plus, despite their seeming unpredictability, most ARMs have built-in stabilizers, called "caps," designed to prevent sudden and unreasonable surges in payments. A lifetime cap places a limit on how greatly an interest rate can rise over the life of the loan. A periodic rate cap regulates the total amount your payments can rise at a time.
In addition to these features, some ARMs also utilize a payment cap, which limits the amount your payments can rise over the life of the loan. This means that, even when the underlying index rises, your payments are prevented from exceeding the limits of the cap. With all the intricacies of mortgage rates, it's a good idea to turn to the professionals for your mortgage needs: Park Place Real Estate Company.