ARM vs Fixed Rate in California
With California's median home at $785,000 and conforming limit at $1,089,300, choosing between an ARM and a fixed-rate mortgage comes down to your time horizon and risk tolerance. California remains the most expensive state for housing. After a 2022-2023 correction of 10-15%, prices have recovered in most metros. San Jose, San Francisco, and Orange County lead nationally.
When an ARM May Make Sense in California
- You plan to sell or refinance within 5-7 years
- You're buying in a high-cost California market where even a small rate reduction meaningfully lowers payments
- Rates are at cyclical highs and expected to fall — ARM initial rates can be 0.5-1% lower than fixed
When Fixed Rates Win in California
- You plan to stay long-term (10+ years)
- Payment certainty matters more than short-term savings
- California's property taxes (0.71%, avg $4,016/year) add enough payment variability without adding rate risk
Closing Costs
Either product incurs similar closing costs (~$7,200 in California). Frequent refinancing to escape an ARM adds these costs repeatedly.
Frequently Asked Questions
Is an ARM or fixed mortgage better in California?
It depends on how long you plan to stay. California's median home of $785,000 with a 5/1 ARM can save on initial payments, but fixed rates offer certainty — especially important given California's property tax rate of 0.71% adds its own payment variability.
What are conforming loan limits for ARMs in California?
ARMs and fixed-rate loans both have the same conforming limit in California: $1,089,300. Most California coastal counties qualify for high-cost area limits of up to $1,089,300. San Francisco, Santa Cruz, and Marin counties are at the national ceiling.
How much can I save with an ARM in California?
ARM initial rates are typically 0.5-1% below 30-year fixed rates. On a $628,000 loan (20% down on California's median home), that's roughly $100-200/month in savings during the initial period.
What are closing costs for a mortgage in California?
California charges a documentary transfer tax of $1.10/$1,000 of value statewide, with most counties and cities adding their own transfer taxes. Los Angeles city charges an additional 0.45%, and properties over $5M face higher rates. Budget approximately $7,200 in total closing costs for either an ARM or fixed-rate mortgage in California.