Adjustable rate mortgage, is it right for you?

For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us. Even if you just want a title insurance rate quote. We can help. Located in Fairfield, NJ, we are the title insurance agent that does it all for you.

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Ziggy cartoon pokes fun at adjustable rate mortgages (ARM.)

 

 

As the cartoon implies, an ARM customarily has payments that change with changes in the interest rate.

 

When first introduced about 30 years ago, no one knew quite what to make of them.  Even the Federal government was confused and had to come up with an entirely different formula for calculating the annual percentage rate, APR, on such loans.

 

ARMS were touted as cost savers because the initial interest rate was often a teaser rate, below what fixed-rate mortgages were being offered.  That aspect became the biggest target for fixed-rate lenders to aim at, introducing the concept of "rate shock" into the mix by frightening borrowers with the prospect of massive jumps in payments when the ARM mortgage interest rate adjusted.

 

Point of fact, ARMS have never been the bogeyman they were touted to be. There have been abuses in the ARM loan process, namely, writing loans with negative amortization, fixed payments, and the like, but the basic ARM remains a good way for a first-time homebuyer to get her foot in the door.

 

If you would like to know more about ARMS, read this booklet from the Consumer Finance Protection Board.

 



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NY Times real estate trends for 2014

 Karnak says, "real estate is a puzzle."  The question, what will 2014 bring?  The NY Times tries to answer that question, too.

The coming year is expected to be a little kinder to home buyers. While affordability will continue to be a problem in hot markets like New York and San Francisco, buyers in general may find they have more homes to choose from and more lenders vying for their business.

MORTGAGE RATES CONTINUE TO CLIMB. As the economy improves and the Federal Reserve winds down its monetary stimulus, mortgage rates will rise to reflect that lack of stimulus...

But rates will continue to be low and the sign of a stronger economy.

LENDERS LOOSEN UP, A LITTLE. Rising rates will also mean fewer borrowers seeking to refinance out of higher-priced mortgages. Lenders will try to fill that gap in capacity by competing more aggressively for purchase business. 

What will down payment requirements be?  How about credit scores?

Regulatory guidelines that take effect in January will set parameters on how much easing lenders can do without straying outside the government’s “qualified mortgage.” Lending outside that safe harbor isn’t likely to be liberal, and will mainly consist of low-risk loans to the wealthy...

HOMEOWNERSHIP RATES FLATTEN OR FALL. It may seem counterintuitive that the level of homeownership would be unresponsive to improving market conditions. But the national rate is only just stabilizing — at around 65 percent — after dipping from the historically highs during the housing bubble.

 And those young adults who, because of a stronger economy, are finally able to find jobs and move out of their parents’ homes are more likely to rent than buy.

ARMS, CASH-OUT ‘REFIS’ MAKE A COMEBACK. Adjustable-rate mortgages, or ARMs, were viewed as risky after the housing-market collapse. But they are slowly regaining their appeal, and as rates on fixed-rate mortgages rise, more borrowers will take advantage of lower-rate adjustables.[See our earlier post on ARMS.]

Cash-out refinancing was also abandoned after the collapse emptied borrowers of equity [but] interest rates will still be low enough to make cash-out refinancing an option for many people. 

Only time will tell, and that time is just a few weeks away.  Read the full report.

For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us. We can help. Located in Fairfield, NJ, we are the title insurance agent that does it all for you.

For your next title order or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Land Services LLC

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-808-6130 - Fax 973-227-0645

E-mail sflatow AT vested.com

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Should You Pass On The Fixed Rate Mortgage?

The answer to the question raised above is, it depends.  While fixed rate loans give you comfort in knowing your loan payment will never change, does it make sense to borrower long term if you plan on being in the home for, say, 5 hears?  Decidedly not and the ARM, the adjustable rate mortgage, may be the loan for you.

Here's an article from  Realty Times that discusses the big pro of borrowing with an ARM for home ownership.

Should You Pass On The Fixed Rate Mortgage?

For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us. We can help. Located in Fairfield, NJ, we are the title insurance agent that does it all for you.

For your next title order or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Land Services LLC

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-808-6130 - Fax 973-227-0645

E-mail sflatow AT vested.com

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Adjustable rate mortgages in the news

Adjustable rate mortgages, ARMs for short, are back in the news at the New  York Times.  The Times loves to tout ARMs as risky, but it’s never quite clear who is bearing the risk—the borrower or the investor.

Because adjustable-rate loans carry more risk, rates on them are lower than those on fixed-rate loans. After an initial period of fixed interest, rates may rise — though such loans also come with a lifetime cap that limits ups and downs.

The “risk” to the borrower is, of course, that rates may rise.  But the pain of that risk is the built-in caps on increase in most ARM loans.  For instance, the commonly used 1 year Fannie Mae note provides for a cap on each adjustment AND a maximum interest rate over the life of the loan.  These provisions are designed to avoid the so-called “interest rate shock” that elected politicians love to speak about.

In any event, is an ARM good for you?  Speak to a qualified mortgage loan officer to find out.  And, importantly, compare the numbers.

Here’s the full article:

The New York Times

August 29, 2013

Risks Aside, ARMs Gain Ground

By Marcelle Sussman Fischler

With mortgage rates inching up and homeowners often refinancing before the end of their loan terms, adjustable-rate mortgages are becoming more enticing to more borrowers.

In July, for example, 6.5 percent of mortgage applications nationwide were for adjustable-rate loans, while a year ago, the percentage was 4.2, according to the Mortgage Bankers Association, which expects demand to continue. “We expect ARMs to increase,” said Matthew J. Robinson, a spokesman.

Because adjustable-rate loans carry more risk, rates on them are lower than those on fixed-rate loans. After an initial period of fixed interest, rates may rise — though such loans also come with a lifetime cap that limits ups and downs.

For some borrowers, the initial savings may be worth the risk. By taking an adjustable-rate mortgage with a 5/1 term (with the rate fixed for the first five years) at 3.21 percent rather than a fixed 30-year jumbo mortgage at 4.69 percent, someone borrowing $750,000 could save $637.68 a month off the $3,885.28 payment, enough to “lease a nice car or more,” Keith Gumbinger, the vice president of the financial publisher HSH.com, said in an e-mail.

After 60 months, the borrower would have paid $54,565.92 less in interest, or $114,181.61 rather than $168,747.53. Kept in a piggy bank, it would be “enough to put your kid through at least one year of a good college,” Mr. Gumbinger added.

The potential hitch is that borrower may need to refinance or sell the home before the fixed portion of the loan ends — or possibly “be exposed to significantly higher interest rates and monthly payments,” Mr. Gumbinger said, “which could wipe out the savings pretty quickly, not to mention causing you budgetary duress.”

According to Freddie Mac’s Primary Mortgage Market Survey, for the week ended Aug. 29, a 30-year fixed-rate mortgage averaged 4.51 percent, while a five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.24 percent.

John Aita, a retail sales supervisor for Wells Fargo Home Mortgage in Melville, N.Y., says fewer borrowers these days seem likely to get stuck with a higher rate when the fixed portion of the ARM expires. “People never keep the loans that long anymore,” he said, citing six years as the average. “Either they refinance or they move.”

For first-time buyers who plan to move up to larger quarters as their families grow, or for young professionals whose income will rise in a few years, adjustable-rate mortgages are “a fantastic deal,” Mr. Aita said.

“If you are planning to use the house as a steppingstone and not going to stay 30 years,” he said, “take the adjustable.”

Those planning to downsize after their children go off to college can also benefit.

Six months ago, Beth Zucker, a single mother from Bucks County, Pa., whose twins are 13, refinanced from a 7/1 ARM to a 10/1 interest-only ARM at 3 percent.

She’s not worried about where interest rates will be when the rate adjusts in a decade. “When my twins go off to college,” said Ms. Zucker, who is a financial adviser, “I’m going to sell the house and downsize.”

The most common adjustable-rate mortgages are designated 3/1, 5/1, and 7/1, according to freddiemac.com.

A 3/1 ARM has a fixed interest rate for the first three years. After that, the rate can change annually. A similar rule applies for a 5/1 and 7/1 ARM. If the rates increase, monthly payments increase. And if rates dip, payments may not decrease, depending upon the initial interest rate. Typically, an adjustment “cap” limits how much the interest rate can jump or fall at each adjustment period.

For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us. We can help. Located in Fairfield, NJ, we are the title insurance agent that does it all for you.

For your next title order or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Land Services LLC

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-808-6130 - Fax 973-227-0645

E-mail sflatow AT vested.com

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Getting a mortgage will be a bit harder

Realty Times reports: "Fannie Mae Tightens Underwriting Rules for Condo, Refinance Loans, Borderline Borrowers" by Shashank Shekhar.

Fannie Mae is putting the squeeze on underwriting guidelines this fall, making it tougher for some condo, borderline and refinancing borrowers to land a home loan.

Effective Oct. 20, 2012, the stricter rules are designed to reduce Fannie Mae's ever growing exposure to risk. They will also force more borrowers to shop around.

Here are some highlights:

Condominium Loan Documentation – Right now with less than 10 percent down, condo buyers need to complete a two-page condo questionnaire about the homeowner association's financials and provide additional documents including a reserve study, by-laws and a copy of the master insurance policy.

The documents are readily available from the homeowners association, but with Fannie Mae lenders pouring over more documents, there's a greater chance more loans could be denied for failing to meet Fannie Mae's condo loan underwriting criteria.

End of Discretionary Approvals – Discretionary approvals, also called "Expanded Approvals (EAs)" will end for all Fannie Mae refinances, except Fannie Mae's Refi Plus Program loans, also called HARP (Home Affordable Refinance Program) loans.

Self-Employed Borrowers – Fannie Mae will require self-employed borrowers seek a loan to provide two consecutive years of federal tax returns, instead of the current one year tax return requirement for some returns.

Because of the new two-year average approach, one bad year out of two could sink a self-employed homeowner's application even if the most recent year would have qualified him or her under the old rules.

Maximum LTV Reduction for Adjustable Rate Mortgages (ARM) – The current LTV allowed for ARM home purchases and refinances, 97 percent, will be reduced to 90 percent.

You can read the full article here.

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if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Land Services LLC

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E-mail sflatow AT vested.com

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For some borrowers, adjustable rate mortgages are the key

The New York Times’ Maryann Haggerty writes about The Appeal of Adjustable Rates

“THE 30-year fixed-rate loan has earned its reputation as the sensible, conservative move in the aftermath of the financial crisis, especially with near-low interest rates. But despite risks, some borrowers still are getting or keeping adjustable-rate loans, which have even lower rates.”

“Adjustable rate mortgages generally attract borrowers when rates are high. The rate is set for a specific time — generally one, five or seven years — and then it adjusts to prevailing rates within boundaries. That means payments can go up. Payment shock has caused plenty of problems over the years. [From the Ed – shows us the cases.] Rates can also go down, as borrowers who took out ARMs five to seven years ago are finding now. But it’s tough to imagine how rates could get much lower than now, short of Japan-style negative rates.”

 According to Sari Rosenberg of Manhattan Mortgage Company whom we’ve worked with, “If a person is debt-averse and has a history of paying off his or her mortgage within 5 to 10 years, then he or she would definitely consider an ARM.”

Who else would benefit?  According to Ms. Rosenberg, “I have another client who knows he is selling his home within the next few years and even with the closing costs he will be saving money,” so he took out a three-year ARM.

“Keith Gumbinger, a vice president of HSH Associates, a financial publisher in Pompton Plains, N.J., said, “ARMs are good for borrowers with short-term time frames, usually seven years or less.”

“Conversely, ARMs aren’t wise for borrowers who plan to stay put, Mr. Gumbinger said, or those who would have trouble managing rising payments. That includes people who expect cash-flow strains, such as those starting a family.”

Is an ARM right for you?  A savvy mortgage counselor can help.  Read the full story.

For your next title order or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Title Inc.

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-808-6130 - Fax 201-656-4506

E-mail vti@vested.com - www.vested.com

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Adjustable Rate Mortgages becoming popular again?

The New York Times Lynnley Browning reports on the move back to the once despised adjustable rate mortgage.

“IN the years since the financial crisis, adjustable-rate mortgages, or ARMs, with their low initial interest rates that changed over time, have been considered riskier than fixed-rate loans and shunned by most buyers. But these days more people are being persuaded to give the loans a try.”

However, the mortgage seems to have learned one lesson of the mortgage melt down.

“This time around, lenders are rolling out more conservative ARM products — without the gimmicky extra-low “teaser” rates that adjust every six months, or the “pick-a-pay” and “option” features that allow borrowers to pay less than the monthly interest, only to be hit with a huge bill down the road.”

“Those ARMs were hallmarks of the subprime mortgage boom that fueled the soaring rate of mortgage defaults and home foreclosures nationwide.”

Lenders ranging from Equity Now in New York to Bank of America are increasing the number of ARM transactions.

“Mortgage brokers and lenders say the loans most in demand are the “5/1” and “7/1,” in which the initial interest rate is fixed for the first five or seven years — after which many homeowners typically think about selling or refinancing anyway — then adjusted annually at a capped rate toward a maximum level.”

While many have railed against the risk inherent in changes of interest rates over time, I believe history reveals that ARMs were safe due to caps on increase amounts at each step and over the lifetime of the loan. For a homeowner who plans on selling within a few years, the ARM may give her a nice discount in rate.

Starting rates are usually one to one and a half percentage points below those of 30-year fixed-rate loans.

“But one catch is that getting an ARM may now be harder.

“Last summer Fannie Mae, the government buyer of home loans, said lenders must qualify borrowers on either the initial rate plus two percentage points, or on the full index rate to which the initial rate is tied, whichever is greater.”

While ARMs may be attractive to some, it’s doubtful that the number of ARM transactions will approach the 1994 high of about 70 percent of all home purchases.

Read the full report More Borrowers Are Opting for Adjustable-Rate Mortgages

For your next title order or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Title Inc.

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-808-6130 - Fax 201-656-4506

E-mail vti@vested.com - www.vested.com

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