There’s a new loan product rising in popularity for homes in affluent neighborhoods as it pertains to ARMs, also known as adjustable rate mortgages.
The new product is the jumbo 5/5 ARM. This loan is a five-year ARM but the interest rate is fixed during those initial five years, After the first five years, the adjustment period, a new rate will be established for an additional five years. During the course of a 30-year loan, it will have a new fixed rate every five-years.
Because the monthly payments isn’t adjusting with bond market swings like they do on other ARMs like a 1/1, 3/1, or 5/1 ARMs, it gives the borrower some assurance as what their payment will be.
It is not always a win-win for the borrower as they may have their rate fixed locked-in for another five-years during a period of rate decreases. So, you’d have to be content with the rate you are dealt with no matter what happens.
To make it even more attractive, the start rates on Jumbo 5/5s and 5/1s ARMs are in the high 3s as aggressive lenders want your business. The jumbo 10/1 ARM which has a fixed rate for 10 years prior to the yearly adjustment has a higher rate than a 5/5, yet still remains a good choice as each borrower has different needs and levels of risk.
As with any loan product, borrowers need to analyze the maximum cap per adjustment and margins from each lender and figure out if it works well with their financial situation. Today is the 2/2/5 maximum adjustments are the most preferred and coincidentally the most available. It appears the lenders are listening to the borrowers. In going back to the 2/2/5 limits, the first two tells you the maximum change the rate can adjust once the first five years is up, in this case, “two percent”; for any new resets following the first, the maximum rate change is also “two percent”; and the highest the rate can ever be during the life of the loan is “five percent” more than your start rate. Here’s a real world scenario of this using a 5/5 jumbo. If the borrower has a starting interest rate of 4% , the loan rate is able to only go up to a maximum of 6% in first five years and the rate could never go above 9%.
Besides looking at rates, maximum caps, another important element of ARMs is the margin. Most margins for “A'”credit borrowers is two, and private banking clients may get 1.75 or 1.50 depending on their liquid assets deposited with the bank. It is not a widely offered product but to get this loan or a different Jumbo ARM, simply apply online here.
Connect on Google+