Jumbo ARM's

fixed hybrid jumbo arms

A Jumbo ARM is an adjustable-rate loan that is over the conforming loan limits established by Fannie Mae and Freddie Mac, which has been raised recently to $424,100 from $417,000 for a single family home.

However, in high-cost residential areas the limits are increased up to $636,150 depending on the county. Many counties in California, especially those on the coast have conforming limits of $636,150. Financing above that will require a California jumbo loan which we can assist you with.

The most popular Jumbo ARM's are the following:

Introductory Rate ARMs

Most adjustable rate loans (ARMs) have a low introductory rate or start rate, some times as much as 2.0% below the current market rate of a fixed loan. This start rate usually ranges from 3 months to as long as 10 years. As a rule, the lower the start rate the shorter the time before the loan makes its first adjustment.

Index - The index of an ARM is the financial instrument that the loan is "tied" to, or adjusted to. The most common indices, or, indexes are the 1-Year Treasury Security, LIBOR (London Interbank Offered Rate), Prime, 6-Month Certificate of Deposit (CD) and the 11th District Cost of Funds (COFI). Each of these indices move up or down based on conditions of the financial markets.

London Inter Bank Offered Rate (LIBOR)
LIBOR is the rate on dollar-denominated deposits, also know as Eurodollars, traded between banks in London.

12 Month Treasury Index (MTA)
The ratio of the dollar amount paid in interest during the month to the average dollar amount of the funds for that month constitutes the weighted average cost of funds ratio for that month.


Cost of Funds Index (COFI)
The ratio of the dollar amount paid in interest during the month to the average dollar amount of the funds for that month constitutes the weighted average cost of funds ratio for that month.

Margin - The margin is one of the most important aspects of ARM's because it is added to the index to determine the interest rate that you pay. The margin added to the index is known as the fully indexed rate. As an example if the current index value is 5.50% and your loan has a margin of 2.5%, your fully indexed rate is 8.00%. Margins on loans range from 1.75% to 3.5% depending on the index and the amount financed in relation to the property value.

Interim Caps - All adjustable rate loans carry interim caps. Many ARM's have interest rate caps of six-months or a year. There are loans that have interest rate caps of three years. Interest rate caps are beneficial in rising interest rate markets, but can also keep your interest rate higher than the fully indexed rate if rates are falling rapidly.

Payment Caps - Some loans have payment caps instead of interest rate caps. These loans reduce payment shock in a rising interest rate market, but can also lead to deferred interest or "negative amortization". These loans generally cap your annual payment increases to 7.5% of the previous payment.

Lifetime Caps - Almost all ARM's have a maximum interest rate or lifetime interest rate cap. The lifetime cap varies from company to company and loan to loan. Loans with low lifetime caps usually have higher margins, and the reverse is also true. Those loans that carry low margins often have higher lifetime caps.

ARM's are available on terms of 1, 3, 5, 7 & 10 Years for either a purchase or home loan refi.

Get more advice on fixed rate loans