“Have you considered an ARM?” is a scary question to ask. Sometimes I hesitate to ask it because I’m afraid that I won’t be able to explain the product before my clients go running out the door. The fact is that in some circumstances it makes the most sense.
The adjustable rate mortgage has taken a beating over the past year; By the media, real estate agents, and even other loan officers. Because of it the ARM now has a stigma attached to it comparable to the stigma of subprime loans, pre-payment penalties, negative amoritization, and foreclosure (all terrible things).
It’s true that in the past some adjustable rate mortgages had pre-payment penalties, negative amoritization, balloon clauses, and rising payments, but most of those types of loans and the loan officers that sold those products are a thing of the past.
The adjustable rate products available today are the same that were available 15 years ago….Safe and Affordable. Pre-payment penalties are gone, negative amoritization loans are gone, balloon payments are gone, and there is a new law to help with the disclosure of the rate and terms.
A 30 or 15 year fixed mortgage is always the safest way to go because you will know that as long as the loan is alive your payments will never change. But for some people who are certain that they are going to move before 3, 5, 7, or 10 years, they will save a lot more money with an ARM…In some cases, up to 20%.
With a 5/1 ARM, where the interest rate is fixed for the first 5 years, the interest rate might be 4.25%. On a $200,000 loan that is a principal and interest payment of $984/month. With a 30 year fixed mortgage at 5.125%, the payment would be $1,089/month. At a savings of $105/month, over 5 years you would save over $6,200. If you knew that you would be selling the home before the 5 years, why wouldn’t you go with an ARM?
I believe that because of the negative media attention that the ARM has received recently, a lot of people are missing out on some serious savings. I think that with the help of responsible real estate agents and loan officers that the ARM should and will make a comeback.
Filed under: Uncategorized | Leave a Comment »
