Question 1

What does the 5/1 in a 5/1 ARM mean?

Accepted Answer

The rate is fixed for 5 years, then adjusts once per year after that. Most ARMs in SF are 5/1, 7/1, or 10/1 structures.

Question 2

How high can my ARM rate go?

Accepted Answer

Caps limit how much the rate can move. A 2/2/5 cap means 2% at first adjustment, 2% per year after, and 5% total over the loan's life.

Question 3

Do I need more reserves for a jumbo ARM in SF?

Accepted Answer

Yes. Most jumbo ARM lenders want 12 months of PITI in reserves. Some portfolio lenders require even more.

Question 4

Can I refinance before the ARM adjusts?

Accepted Answer

Yes, and many SF borrowers plan to do exactly that. There's no guarantee rates will be favorable when you're ready to refi.

Question 5

Are ARMs harder to qualify for than fixed loans?

Accepted Answer

Lenders qualify you at the fully indexed rate, not the start rate. That means your qualifying payment is higher than your actual initial payment.

Question 6

What index do most ARMs use?

Accepted Answer

Most modern ARMs use SOFR as their index. Your rate equals the index plus a margin — typically 2.5% to 3%.

ARM Loans in San Francisco: Lower Rates, Smarter Plays