Do You Qualify for an Adjustable Rate Mortgage?

Arms are Back!

The adjustable rate mortgages that you see today are a much safer investment than the "ARMS" we all keep hearing about having to do with the "Sub-Prime Meltdown." Those "B/C loans" had margins of 3.50% to 7.50% where as today's Fannie Mae/Freddie Mac/FHA adjustable rate mortgages have margins of 2 to 3%.*

*Adding the margin and the index together is what ultimately determines the future rate 

What are the advantages of adjustable rate mortgage loans vs fixed-rate mortgage loans?

Adjustable rate loans capture savings immediately where fixed rate loans capture security and savings in the long term.

Adjustable Rate Mortgages are a viable alternative if you know you will be moving on in three, five or seven years or if you expect mortgage rates to go lower. 

Adjustable Rate mortgages allow you to capture your savings now rather than later.

• Adjustable rate mortgages are good for the up and comers who are buying their first home or just got out of college. They know their earning potential will improve over the next few years. If I was a young doctor with a mountain of student loans to pay down, I would consider an adjustable rate loan.
• For a while, adjustable rate mortgages were getting a bad name thanks to the subprime crisis or mortgage meltdown. Getting an ARM can be a smart move in today's real estate market.
• Another example of a good use of an adjustable rate mortgage is for executives who routinely are relocated with their company
• Or for customers who plan to sell their home and move into less house when they retire
• The days of high caps and margins associated with sub-prime loans are gone!

Every customer considering an adjustable rate mortgage should receive a "Charms" booklet at the beginning of the process. CHARM booklet.pdf

DoYouHaveanArmNow

Please see my attached article on Adjustable Rate Mortgage Rates

http://www.huliq.com/1/86899/adjustable-mortgage-rates-are-back

Adjustable Rate Mortgages are Back

        As seen on Huliq.com

If you haven’t noticed adjustable rate mortgages are back. During the last three years even mentioning the term adjustable rate mortgage was almost like using a four letter word. We all have heard the horror stories of the sub-prime mortgage meltdown where innocent homeowners were the victim of massive interest rate fluctuations. Adjustable rate mortgage interest rates in the 6% range adjusting to 9% or more after two or three years. Also during the last two to three years we have had what the economists refer to as an inverted yield curve in the bond market.  This phenomenon typically is a sign of inflation to follow. During this time loan originators in the mortgage industry would not quote adjustable rate mortgages because they actually were more expensive than a 30 year fixed. Why would you quote a customer a 5/1 adjustable at 5.25% when you could give them a 30 year fixed at 5%.

During the last few months the adjustable rate mortgage has come back to our rate sheets in a good way. Currently a good borrower can go find a 5/1 adjustable rate mortgage (ARM) around 4%. The thirty year fixed rate is around 5%. These loans are not bad because the margin is low. When an adjustable rate loan adjusts after the initial locked in period, it adjusts to the total of a margin and an index. Typically the index is something fairly steady like a LIBOR or T-Bill index and the margin (the number the consumer should make note of) is added to the index to determine the new adjusted rate. Our margins today are low, usually 2.25% or 2.50%. Those nasty subprime loans had indexes of 5-8%. This is not a bad loan if the customer plans to be in the home five years or less.

The second story behind this news is the general perception of where mortgage interest rates are headed in the near future. Good adjustable rates point towards lower interest rates in the short term. (1-3 years) When we had the inverted yield curves three years ago the general consensus was that inflation was on the horizon. Now there is little lending going on and interest rates may head south in order to attract business.

One fun aspect of my job is that I get to learn from my customers who tell me their opinions on everything from what is a nice house to who to vote for. Last week I was talking with a very astute financial advisor who was still actively consulting even though he was well into his 70’s. He pointed out to me why we he felt we are headed for a period of deflation. Very simply he said that gross national product is the result of the money supply times the velocity of money. The government can increase the money supply all they want because the velocity of money is still shrinking. Money is not changing hands. Banks are not lending because they are concerned about foreclosure rates so they are increasing reserves on their balance sheets. The market place will have to maintain the lowest interest rates possible to force lending. He predicted a terrible year for banks, with a lot of failures and a year of low interest rates to attract whatever business is left.

We will see.

Written by Preston Ware
First South Mortgage
Tel: 704-542-8057
* http://www.prestonware.com
Email is preston@prestonware.com.

Adjustable Rate Mortgages -- ARMs, as we called them above -- come in many varieties. Most programs have a "cap" that protects you from your monthly payment going up too much at once. There may be a cap on how much your interest rate can go up in one period -- say, no more than two percent per year, even if the underlying index goes up by more than two percent. You may have a "payment cap," that instead of capping the interest rate directly caps the amount your monthly payment can go up in one period. In addition, almost all ARM programs have a "lifetime cap" -- your interest rate can never exceed that cap amount, no matter what.

ARMs often have their lowest, most attractive rates at the beginning of the loan, and can guarantee that rate from anywhere from one month to ten years. You may hear people talking about or you may read about loans that are called "3/1 ARMs" or "5/1 ARMs" or the like. That means that the introductory rate is set for three or five years, and then adjusts according to an index every year thereafter for the life of the loan. Loans like this are often best for people who anticipate moving -- and therefore selling the house to be mortgaged -- within three or five years, depending on how long the lower rate will be in effect.

If you are looking at a Jumbo (above $420,000) loan or a Super Jumbo (above $650,000 to 3,000,000) loan in today's market, you probably should be looking at an adjustable rate mortgage. Fixed rate jumbo prices are terrible and jumbo ARM prices are actually very competitive. Super Jumbo ARMs still comes in 3, 5, 7 and 10 year fixed periods. Customers in this category are typically good money managers and can anticipate changes well.