Adjustable Rate Home Mortgages Making A Comeback
Bill Kamboukos of Strategic Mortgage wrote an article on adustable rate home mortgages making a comeback. In light of all the talk about the feds restricting mortgages to 20% down, we thought this article was one of interest to all.
Believe it or not, adjustable rate mortgages are making a comeback During the housing boom nearly seventy percent of all mortgages issued were ARMs, but then disappeared during the downturn, totaling just three percent of the total market in 2009. However, ARMs now make up 5% of all mortgages issued, and Freddie Mac predicts that will jump to 10% by December 2011. Behind the comeback in ARM mortgages, is that right now these loans are a great bargain for the right person.
5 year fixed adjustable rate mortgages currently have interest rates near 3.5%, compared to almost 5% for 30 year fixed mortgages. Of course with ARMs as opposed to fixed rate loans, interest rates change over time.
For example, the 5/1 ARM, the most common adjustable rate loan, that 3.5% introductory rate will last for the first five years. After that, the rate will adjust annually. Where as a thirty year fixed loan will stay that way for the life of the loan, fixed.
Of course for someone who is planning on staying in their home for a loan time an arm might not make sense, but for someone who thinks that they may stay in a home for five or six years, then an arm may make sense. On a $200,000 mortgage, the monthly ARM payment at 3.5% would be $898 compared with $1,074 for a 30-year, fixed-rate loan at 5%.
That's a $10,560 difference after five years, when the ARM would adjust and at that point if you stay in the home a bit longer, then there are caps to how quickly the interest rate can adjust upward.
Unlike some of the adjustable rate loans that existed in recent years, these standard arms are loans that have been backed by Fannie Mae and Freddie Mac for years and are for borrowers with good credit and down payments and/or equity in their homes.
An adjustable rate mortgage is not for everyone and for a first time homebuyer or someone looking to stay in a home for the foreseeable future, now may be the time to lock into a fixed rate loan at historic lows and leave the mortgage alone. However, in the right situation it is important to not overlook that adjustable rate mortgages can be used effectively as well.
For more information on current home loan programs and options for existing and potential home owners, please contact Bill Kamboukos of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com
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