• Compass DRE# 01991628
  • Address: 2120 Colorado Blvd., Suite #1, Eagle Rock, CA 90041
  • Office Phone: 323-274-2148

Tracy King Blog - Eagle Rock Real Estate - Northeast Los Angeles Realtor

Menu

LA Digs - Northeast LA Real Estate Blog

Welcome to LA Digs, the real estate and Northeast Los Angeles community blog written by Realtors Tracy King and Keely Myres.

Here, we share tips, market updates, and local news bits to keep you informed on what's happening in Northeast Los Angeles and the surrounding neighborhoods. Read on to learn about the latest in your neighborhood!

What is an ARM Loan?

Here is some information on adjustable rate mortgage loans that came from a lender in our area:

Today I wanted to discuss what an ARM (Adjustable Rate Mortgage) loan is and how it works for buyers.   On Friday I locked in a 7/1 ARM at 2.625% for a client of mine. What I realized, while talking through this loan, is that few Realtors, even fewer borrowers, and, sadly, even few lenders really know how ARMs work and why they are still a good product option.   Unfortunately, after 2007, many products,  like the old ‘option-ARM’ , got grouped together and labeled as ‘liar loans’, ‘predatory loans’, or just plain bad products. That’s NOT the case. With the average Californian staying in their home for 7 years and the average American keeping their home loan for just over 5 years, does it really make sense to pay a higher rate premium to lock into a 30 year mortgage?   The answer is maybe. For our client who knows they are going to be selling or refinancing, for any reason, within the next 5-10 years, a 7/1 ARM may be the right product for them. Simply explained, 7/1 means that the loan is ‘locked’ at a specific interest rate for the first 7 years, the adjustable once a year after that.  The payment is still set up on a 30 year amortization schedule, so from day one the client is paying down principal.  Additionally, the program usually has what’s known as 2/5 rate caps.  This means that after the 7th year, the client’s interest rate can only go up a maximum of 2% per year with a lifetime cap of 5% over the start rate. So, for the client I locked in on Friday at 2.625% - who knows he is leaving the state in 5 years – this is the perfect loan for him.  He is saving $300 a month over the 30 year fixed option, he is completely locked in for 7 years, and if for some reason he gets stuck with the property or turns it into a rental, his maximum adjustments will be 2% per year with a max rate of 7.625% in the 10th years. A 5/1, 7/1 or 10/1 ARM definitely isn’t for everyone.  With 30 year fixed rates so low, I generally recommend a 30 year fixed rate as the #1 option.  However, for certain clients, a fully amortized ARM may be the right answer. If you have more questions about these type product, give me a call.

Scott Groves Loan Officer  - Team Lead Prospect Mortgage 1660 Hillhurst Ave| Los Angeles| CA 90027 225 S. Lake - 3rd Floor | Pasadena| CA 91101

cell (818) 679-5188 |  e-fax (877) 808-9569

NMLS ID #365178

This email address is being protected from spambots. You need JavaScript enabled to view it.

Continue reading
1268 Hits

Compass 179x55

Tracy King, Realtor
DRE# 01048877
Phone: 323-274-2148 | This email address is being protected from spambots. You need JavaScript enabled to view it.
COMPASS DRE# 01991628

Keely Myres, Realtor
DRE# 01834633
Phone: 323-274-2148 | This email address is being protected from spambots. You need JavaScript enabled to view it.
COMPASS DRE# 01991628

FacebookTwitterLinkedIn