What is the 7/1 Jumbo ARM loan?
A 7/1 ARM is an adjustable-rate mortgage with a 30-year term that features a fixed interest rate for the first seven years and a variable rate that adjusts once every year for the remaining 23 years. After the fixed period expires, the mortgage rate will adjust based on the current market landscape.
How exactly does the interest rate adjust?
The interest rate on a payment-option ARM is typically low for the first few months. After that, the interest rate usually rises to a rate closer to that of other comparable mortgage loans. ARM interest rates increase or decrease based on an index plus a set margin.
While the index rate can change, the margin always stays the same. For instance, if the index is 3% and the margin is 3.50%, the interest rate on the mortgage adjusts to 6.50%. Alternatively, if the index is only at 2% the next time the interest rate adjusts, the rate will fall to 5.50%, considering the same 3.50% margin.
Who is best suited for this loan?
An ARM can be a smart option if you’re planning to pay the loan off in full before the fixed rate period of seven years expires, or if you may move or sell the house within that time frame. You can reap the benefits of the ARM’s fixed-rate period and sell before it ends and the less-predictable adjustable phase starts.
What’s the major difference between Conventional and Jumbo ARM’s?
The major difference between Conventional ARM’s and Jumbo ARM’s is that Jumbo ARM’s allow borrowers to exceed the high balance conforming loan limit which is currently set to $879,750 for San Diego county.
What about ARM’s vs. Fixed-Rate loans?
The biggest trade off is that ARM’s generally offer lower rates and more flexibility, but if rates rise, you may wind up paying more later in your term. Fixed-rate mortgages may have higher rates, but they come with a guarantee that you’ll pay the same amount every month for the full term.
For more detailed information on these loans and their differences, please visit our blog here, or give us a call at (760) 930-0569 and one of our loan officers will be happy to answer your questions.