Are you a good candidate for an ARM refi?

If your fixed rate monthly mortgage payment is preventing you from meeting you current financial goals, it may be a good time to consider an adjustable rate mortgage, or ARM for short.  ARMs are mortgages with an interest rate that is linked to a specific index, and the rate is periodically adjusted as the index changes.  Remember that whenever there is a change in your rate there is a corresponding adjustment to your monthly payment.  

So are you ready to sign up for a 5/1 Libor 2.25% margin ARM? First let’s make sure you know what you are buying.  The “5” refers to number of years during which your rate will be fixed.  The “1” refers to the future adjustment period, as in your loan will adjust every “1” year after the 5^th year.  The 2.25% refers to the spread added to the Libor index.  Did you catch that? The “5” refers to number of years during which your rate will be fixed meaning that you can essentially get a FIXED loan for 5 years as long as this matches your time frame.  Note that there are also fixed periods available in the 1, 3, 7 and 10 year time frame.

Does a short time frame match your financial objectives? Let’s see if you are a good candidate for an adjustable rate mortgage:

·         You currently live in your first home, and plan to move up in the next 3-10 years

·         You expect to earn higher income in the future, and want to have low monthly payments for now

·         A lower rate means lower payments, which might meet your short term financial goals

·         You anticipate a residential and/or job change which makes it hard to plan your long term goals

Remember, 30 year fixed rates are going to be higher than 5/1 ARM rates because you are paying for the security of a fixed rate for 30 years.  If you only need the security of a fixed rate for 5 years (or 3, 7 or 10), an ARM might be the right financial vehicle for you!

Loan Amounts up to $ 417K (Conforming)				5/1 ARM		30yr Fixed
Value	$        800,000			0pts	1pt	0pts	1pt
Loan	$        400,000		Rate	3.000%	2.875%	4.500%	4.375%
LTV	50%		Payment	$1,686	$1,660	$2,027	$1,997
Payments over the course of 5 years (60 month)				$101,185		$121,604
Total savings of using adjustable vs fixed rate				$20,420
Loan Amounts $ 417K to $697K (High Balance)				5/1 ARM		30yr Fixed
Value	$     1,000,000			0pts	1pt	0pts	1pt
Loan	$        500,000		Rate	3.375%	3.125%	4.625%	4.375%
LTV	50%		Payment	$1,768	$1,714	$2,057	$1,997
Payments over the course of 5 years (60 month)				$106,103		$123,393
Total savings of using adjustable vs fixed rate				$17,290
Loan Amounts above $697.5K (Jumbo)				5/1 ARM		30yr Fixed
Value	$     1,400,000			0pts	1pt	0pts	1pt
Loan	$        700,000		Rate	3.500%	3.250%	5.125%	4.875%
LTV	50%		Payment	$3,143	$3,046	$3,811	$3,704
Payments over the course of 5 years (60 month)				$188,599		$228,685
Total savings of using adjustable vs fixed rate				$40,086

 Tracy Trudeau, Senior Loan Officer, 858 216-4385, tracy@tracytrudeau.com

There is a silver lining

Is there an upside to our global instability and a weak economic situation? For my industry, yes.

Mortgage rates have fallen to their lowest levels of 2011 - down 1/8 just this week.  With the bond soaring it is only a matter of time before they drop down another tick.  Current 30-year fixed rates are nearing 4.5% and 15-year rates are under 4%. 

History indicates that unexpected events - particularly  foreign terrorism threats -  have a largedeep impact on rates.  While these events may be bad for the stock market, they are great for the bond market and result in lower rates.  The silver lining.

War, Oil and Inflation

America is at war. An international threat has been taken down.  How do these international crises affect us in the US? How do they affect our pocket books?

On the heel’s of bin Laden’s death we see American morale at an all time high … and the predictable rise of stock futures.  But the price of oil continues to soar and impact us both in terms of higher energy costs … and reduced spending power.  

The high price of energy continues to inflate the US dollar which means that a dollar today will buy you less than a dollar from ten years ago.   Less buying power indicates that inflation is a concern.

Inflation makes both lenders and investors nervous. Hint at the term “inflation” and they either want higher fixed rate loans or low rate adjustable loans with teaser rates.  This is going to be an interesting week!