Fixed or Adjustable Rate Mortgages in California

Allison Beatty
LoanBiz Columnist


If you're shopping for a mortgage in California, you may be wondering whether it is better to go with a fixed or adjustable rate loan. Here's how to decide which one best fits your mortgage needs.

Fixed Rate Mortgages Add Stability

Fixed rate mortgages are a mainstay of the California loan community, as they give home owners a stable mortgage rate for the life of the loan. If you take out a 30-year mortgage at a 6 percent rate, then you know the rate and payments will be the same throughout the loan period. The advantages are:

• Predictability.
• Protection against future interest rate fluctuations.
• Ability to plan for the long term.

Adjustable Rate Mortgages Hedge Against Market

Adjustable rate mortgages are popular in certain California markets, however, as they let home buyers get into a home using a lower interest rate. The loan rate then climbs, typically by one percentage point, each year after the initial term ends.

For example, if you take out a five-year adjustable rate mortgage, the lower loan rate will be in effect for the first five years. This is particularly helpful for those trying to get into higher priced homes, as even a quarter of a percent can make a difference in home affordability.

Look Forward for Loan Rate Clues

When debating these two loan options, do some research into the short-term forecast for interest rates. If rates are inching upward, you may be better off locking in a fixed rate mortgage, for example.

There's no right answer when it comes to choosing a mortgage. It's best to discuss all your options with a loan officer or financial advisor.

About the Author
Allison E. Beatty is a syndicated real estate writer who has been writing home improvement columns for 15 years.