Definition of Adjustable Rate Mortgage:

Adjustable Rate Mortgages in Orange County:

These are mortgage loans under which the interest rate is systematically adjusted to more closely resemble current fixed interest rates. The amounts and times of adjustment are agreed to at the beginning of the loan between the lender and the borrower. These are commonly referred to as Adjustable Rate Mortgages or ARM’s. Most lender charge borrower’s an interest rate off of an index such as LIBOR (or London Inter Branch Offered Rate) or COFI (or 11th District Cost of funds), and the rates can go up or down based on these indexes. The lenders earn interest by charging a premium over the base index expressed in a way such at COFI +2%, or LIBOR +3 depending on the terms of the loan. The most common Adjustable Rate Mortgages are 5, 7 and 10 years which simply means that they are a fixed rate loan for 5, 7 or 10 years respectively. After the fixed-rate period the borrower’s interest rate will begin adjusting upwards or downwards depending on current market rates.

Since The typical Orange County resident does not live in their home for 15 or 30 years, which is the typical term for a fixed rate loan, an Adjustable Rate Mortgage (ARM) many times will make a whole lot of financial sense to a savvy borrower, especially if they plan on selling or refinancing prior to the end of end of the introductory fixed rate period. All buyers should be made aware that their interest rate may adjust upwards after their fixed rate period.


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