Adjustable Rate Mortgage Calculator

Thinking of getting a variable rate loan? Use this calculator to figure your expected monthly payments — before and after the reset period.

To help you see current market conditions and find a local lender current San Francisco traditional ARM rates are published in a table below the calculator.

Current San Francisco Mortgage Rates

The following table shows current San Francisco 30-year mortgage rates as that is the most popular choice by home buyers across the United States. If you would like to compare fixed rates against hybrid ARM rates which reset at various introductory periods you can use the [loan type] menu to select rates on loans that reset after 1, 3, 5, 7 or 10 years. By default purchase loans are displayed. Selecting refinance from the loan purpose drop down displays current refinance rates.

The following table shows current 30-year mortgage rates available in San Francisco. You can use the menus to select other loan durations, alter the loan amount, or change your location.

Understanding Adjustable-Rates

The U.S. has always been the world capital of consumer choice. Many economies have 2 or 3 square feet of retail space per consumer, while the United States has close to 24 square feet of retail space per consumer. Visitors are often overwhelmed by the variety offered in our stores, supermarkets, and service industries. And the mortgage game is no different.

When making a major purchase like a home or RV, Americans have many different borrowing options at their fingertips, such as a fixed-rate mortgage or an adjustable-rate mortgage.

Almost everywhere else in the world, homebuyers have only one real option, the ARM (which they call a variable-rate mortgage).

What Are Adjustable Rate Mortgages?

An ARM is a loan with an interest rate that is adjusted periodically to reflect the ever-changing market conditions.

Usually, the introductory rate lasts a set period of time and adjusts every year afterward until the loan is paid off. An ARM typically lasts a total of thirty years, and after the set introductory period, your interest cost and your monthly payment will change.

Of course, no one knows the future, but a fixed can help you prepare for it, no matter how the tides turn. If you use an ARM it is harder to predict what your payments will be.

You can predict a rough range of how much your monthly payments will go up or down based on two factors, the index and the margin. While the margin remains the same for the duration of the loan, the index value varies. An index is a frame of reference interest rate published regularly. It includes indexes like U.S. Treasury T-Bills, the 11th District Cost of Funds Index (COFI), and the London Interbank Offered Rate (LIBOR).

After the Great Recession of 2008 to 2009 the Federal Reserve pinned rates to the floor and left them there for nearly a decade. As the Federal Reserve began normalizing interest rates Libor increased steadily. That, in turn, lowered demand for ARM loans consumers presumed rates would continue rising.

“For Kerrie Debbs, partner and certified financial planner at Pennington, New Jersey-based Main Street Financial Solutions LLC, the rise is already having an effect. Clients buying homes are shying away from adjustable mortgages given risks of higher costs, she said.”

Historically consumers have preferred fixed-rates in low interest rate environments and rising interest rate environoments. Fixed rates allow consumers to lock in a specific rate for the duration of the loan. As rates move higher & the rate outlook becomes less certain banks have greater incentive to push the risk of rising rates onto consumers by promoting adjustable-rate loans.

Banks can offer homebuyers a significantly lower rate on adjustable rates than fixed loans since the banks can charge consumers more if rates rise further. ARMs become a more popular choice for consumers high interest rate environments. The 30-year fixed-rate mortgage has stayed well anchored even as Libor rates have jumped, thus consumer preference for fixed rates remains high. That preference is unlikely to change until the interest rates on fixed-rate mortgages jump significantly.

The COVID-19 global health and economic crisis once again pinned rates to the floor, which in turn only further increased consumer demand for fixed-rate loans. Fannie Mae projected 2020 to be a record year for mortgages with $4.1 trillion in originations.

Adjustable-Rates vs. Fixed-Rates

Every potential homebuyer faces this decision, and there are pros and cons to both kinds of mortgages. What you plan to do both in the near and distant future determines which loan arrangement will be best for you.

The APR of a fixed-rate mortgage (FRM) remains the same for the life of the loan, and most homeowners like the security of "locking in" a set rate and the ease of a payment schedule that never changes. However, if rates drop dramatically, an FRM would need to be refinanced to take advantage of the shift.

An ARM is more of a roller coaster ride that you put your whole house on. It fluctuates with the real estate market and with the economy in general. The sweet three percent deal you have today could shoot up to eight percent as rates reset and LIBOR goes up.

What Are The Common Reset Points?

The reset point is the date your ARM changes from the introductory rate to the adjustable-rate based on market conditions. Many consumers wrongly believe this honeymoon period of having a preset low monthly payment needs to be as short as it is sweet.

But nowadays, it is not uncommon to set mortgage reset points years down the road. Reset points are typically set between one and five years ahead. Here are examples of the most popular mortgage reset points:

• 1 Year ARM - Your APR resets every year. This loan format is called a traditional ARM, though most buyers using an ARM opt for a hybrid ARM. The following options are all hybrid ARMs.
• 3/1 ARM - Your APR is set for three years, then adjusts for the next 27 years.
• 5/1 ARM - Your APR is set for five years, then adjusts for the next 25 years.
• 7/1 ARM - Your APR is set for seven years, then adjusts for the next 23 years.
• 10/1 ARM - Your APR is set for ten years, then adjusts for the next 20 years.

What is the Difference Between a Standard ARM Loan and Hybrid ARMs?

A hybrid ARM has a honeymoon period where rates are fixed. Typically it is 5 or 7 years, though in some cases it may last either 3 or 10 years.

Some hybrid ARM loans also have less frequent rate resets after the initial grace period. For example a 5/5 ARM would be an ARM loan which used a fixed rate for 5 years in between each adjustment.

A standard ARM loan which is not a hybrid ARM either resets once per year every year throughout the duration of the loan or, in some cases, once every 6 months throughout the duration of the loan.

What do Rates Reset Against?

ARMs are typically tied to one of the following 3 indexes:

• London Interbank Offered Rate (LIBOR) - The rate international banks charge one another to borrow.
• 11th District Cost of Funds Index (COFI) - The rate banks in the western U.S. pay depositors.
• Constant maturity yield of one-year Treasury bills - The U.S. Treasury yield, as tracked by the Federal Reserve Board.

Some other indexes used includ the prime rate, the 10 year Treasury security, 6 month LIBOR, Fannie Mae 30/60, the discount rate, and the Federal Funds Rate.

Who Are ARMS Good For?

1

Likely Movers: Adjustable-rate mortgages are not for everyone, but they can look very attractive to people who are either planning to move out of the house in a few years. If your reset point is seven years away and you plan to move out of the house before then, you can manage to get out of Dodge before the costlier payment schedule kicks in.

 

2

Growing Incomes: Those who will benefit greatly from the flexibility of an ARM are people who expect a sizeable raise, promotion, or expansion in their careers. They can afford to buy a bigger house right now, and they will have more money to work with in the future when the reset date arrives. When the reset happens if rates haven't moved up they can refinance into a FRM. Homebuyers working for a hot startup who are waiting for their stock options to vest also fit in this category. If you believe the home will appreciate significantly and your income will go up then you can refinance an ARM into a fixed-rate loan.

 

3

Home Flippers: Real estate investors who rapidly turn over homes plan on selling most homes before any ARM rate reset would take place, so opting for whichever loan offers the lowest rate is a prudent move if they are experienced and are certain they'll sell the home soon.

 

4

Homebuyers In Expensive Cities: ARMs are more popular in states and cities with expensive real estate. An average home sold to an average buyer in the Midwest is almost certain to be structured as a fixed-rate loan. California, Hawaii and New York real estate prices are well above national averages, making affordability an issue in hot cities like New York City, Los Angeles, and San Francisco. That in turn makes even small rate discounts on ARM loans over fixed rates appealing to buyers who are stretching their budgets to buy.

 

Who Are ARMS Bad For?

ARMs are bad for worrywarts. If life's little uncertainties make you feel queasy, you may worry about the future of interest rates every waking moment. But don't worry - you won't end up losing the farm (or your signed Don Drysdale baseball card) because ARMs have caps on them.

A cap is a ceiling, or a limit on the amount your loan rate can increase annually for the duration of the loan. Adjustable-rate mortgage caps are usually set between two and five percent, and they carry a maximum yearly increase of two percent.

That is not exactly risky proposition, but it can appear so to a non-gambler.

You can run the numbers in advance to estimate the monthly cost at different APRs. Our above calculator does this automatically based on the cap you enter.

Advantages And Disadvantages of ARM Loans

✓ Pros	⨯ Cons
Lower payments and rates early in the loan term, allowing borrowers to buy larger, more expensive homes.	Rates and monthly payments can rise dramatically over the course of a 30-year commitment. A six percent ARM can skyrocket to eleven percent in as little as three years.
ARM holders can take advantage of falling rates without lifting a finger, avoiding the inconvenience and high cost of refinancing, including a new set of closing costs and transaction fees.	The first adjustment after your initial set period can be more shocking than any sticker you've ever seen because annual caps sometimes don't apply to the first payments after the reset point arrives. Be sure to read the small print!
It's an affordable way for borrowers with limited funds to buy a house if they don't plan on living in one place for a long time.	ARMs are complex agreements, and novice borrowers can easily be misled and bamboozled by slick talk about margins, caps, ARM indexes, and other industry jargon - particularly if the lender is somewhat shady.

Borrower Beware of Rate Hikes

ARMs are not for the faint-hearted. They offer a better life to those who want lower payments now in exchange for spending more down the road. But make no mistake, your monthly payments will likely increase when your rate adjusts.

You must be prepared financially for the end of the honeymoon. Because caps often don't apply to the one-time initial adjustment, you could see a worst-case scenario of your six percent rate adjusting to ten or twelve percent a year if interest rates in the overall economy shoot up.

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