How A Santa Clarita Adjustable Rate Home Loan Work

We will give you an overview of Santa Clarita adjustable rate loan(ARMs), and explain how they work and what you should watch out for if you get an ARM home loan Santa Clarita. We will explain the differences in adjustable rate home loan Santa Clarita vs a 30 year fixed mortgage Santa Clarita. We will also point out differences in home loan interest rates Santa Clarita going with an 5 year ARM loan vs a 7 year ARM. This will get you the information you need to make a good choice about your next home mortgage Santa Clarita.

An ARM home loan Santa Clarita is a loan that the payment can adjust at a certain period in the loan term. ARMs usually start with a lower monthly payment than a fixed rate Santa Clarita loan. Most borrowers will always think of the ARM payment going up but, the payment can go down. Some of the items to get answered before you choose are the following:

• How long does the initial interest rate stay fixed?
• What exactly will be the interest rate if it adjusts the maximum amount?
• How often can the Santa Clarita interest rate adjust?
• What is the index and current rate?
• What is the margin on the loan?
• What is the payment cap?

An adjustable rate home loan Santa Clarita differs from a fixed rate mortgage in different ways. Most Santa Clarita 30 year mortgage rates are around 4-5% for a fixed rate loan. An ARM rate might be 2.8 to 3.5% so the payment would be lower. The ARM will have a fixed payment for a certain period. For an example a five year ARM Santa Clarita would have the same payment for 60 months then be subject to change up or down at that time. It might be readjusted every year thereafter or not. This would be known as a 5/1 ARM. One that has a fixed payment for 7 years would be a 7/1 ARM.

While the ARM would offer a lower payment earlier on, you would have to weigh the risk of what the payment would be later on. You are getting a lower rate but taking more risk. An ARM is NOT for a borrower that has debt issues. ARM home loans are qualified at normally 2% above the start rate to compensate for the payment maybe going up later. The key question to ask is” how long do I plan to own this property”.

Index & Margin on ARM Loans

The Santa Clarita home loan may be calculated as an ARM by your Santa Clarita mortgage broker. The loan would have a margin added to today’s basic rate commonly known as Libor rate. The margin is the amount the lender is adding for profit on the new Santa Clarita home loan. The ARM index is the Libor rate as of today.

Interest Rate Caps

A lifetime cap would limit the max amount the rate could increase. If you have a 5/1 ARM home Loan Santa Clarita, it might be capped to a max of 2% it can go up over the life of the loan. This would be known as a 5/1/2 ARM. These are also known as a Hybrid ARM meaning part of the period is at a fixed rate and part is at an adjusted rate. Any home mortgage Santa Clarita should be compared as an ARM and also as a fixed rate loan.

Refinance From ARM to Fixed

If you have an ARM now and it is nearing the recast date, you will want to check out home loan refinance Santa Clarita options as well as what the Santa Clarita mortgage interest rates are currently. The fixed rate will be a bit higher with a higher monthly payment but maybe you can sleep at night. A Santa Clarita home mortgage can possibly save you tons of money over time by refinancing to a fixed rate loan.

Getting A New Loan

If you are shopping for a home mortgage Santa Clarita, we can help. We are a Santa Clarita mortgage bank and offer all types of Santa Clarita home loans including FHA home loan Santa Clarita, reverse mortgage Santa Clarita and FHA loan refinance Santa Clarita. If you are working with a Santa Clarita Realtor we can get them a pre-approved home loan Santa Clarita letter to present to Sellers showing you are approved for a New Santa Clarita home loan. If you are visiting any of the Open Houses Santa Clarita, be sure to get pre-qualified Santa Clarita before you make an offer.