As the overall mortgage market has become exceptionally conservative over the past couple of years, so too have borrowers. All you have to do is just mention the word "adjustable" and "rate" in the same sentence and from my side of the desk you will find looks of fear on the other. While it is true that many borrowers bought way too much house with the (ab) use of an interest-only adjustable rate mortgage, the ARM product is still a good choice. For SOME borrowers. Many of my customers will never live in their homes for more than 5 - 6 years.
For the past year and half or so, you could obtain a 30 Year Fixed rate for the same and at times, less than, any adustable rate product. During this period we witnessed what is known as an "inverted yield curve" in the bond market. Simply put, the long term bonds were yielding less than the short term bonds. Obviously, while that weird phenomenon was happening, it made no sense to even consider an adjustable rate.
Right now a 30 Year Fixed is about 5.25% for someone with 700+ credit scores. This is a great rate close to historic lows (still!). However, our 5/1 ARM is currently 4.00% for purchase loans. On a $350,000 loan, this would save the customer over $21,000 in interest over the first five years with a payment savings of $262. For the customer that knows they will not be in the home for more than 5 - 6 years, this is a huge amount of money they could save.
I am a huge fan of the 30 Year Fixed rate mortgage and that will always make up the vast majority of the loans I write. But for the corporate employee that moves every few years, or those (such as my wife) that enjoy buying and fixing up homes and then moving on to the next one, right now it may be a good idea to look at an ARM product again.
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