- ARM - adjustable rate mortgage
An ARM is a mortgage loan on a note that is periodically adjusted based on an index that reflects the cost of the mortgage lender for borrowing on the credit markets. They can have a fixed mortgage rate for a number of years beginning the mortgage term, such as five or seven, before they begin to fluctuate with the market and the monthly payments start increasing. ARMs were once to blame for the inundation of foreclosures in the past few years, however they are becoming appealing once again, especially among luxury home buyers. ARMs are currently offering very low interest rates, at least for a certain period, compared to fixed rate mortgages. ARMs make up 30-40% of the private jumbo market at Bank of America and almost half of all private jumbo loans by NASB financial.
“Lenders say high-net-worth buyers face relatively little risk because they can tap liquid assets to pay off a loan should a sudden spike in rates occur,” according to The Wall Street Journal.
Buyers at the higher end are putting a lot of thought into ARMs because of the potential savings on interest. For a jumbo 5/1 ARM the rate could be as low as 2.82% compared to the rate on a 30 year fixed rate jumbo loan of 4.06 according to the mortgage information website HSH.com.
“Over the first five years, borrowers with the 5/1 ARM would save nearly $90,900 in interest on a $1.5 million mortgage compared with a fixed-rate jumbo,” according to The Wall Street Journal.
If you are in the market for high end homes it would be in your best interest to ask your mortgage lender about an ARM and if it would benefit you.
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