Buyers Shouldn’t Dismiss All ARMs

Potential home buyers in search of a mortgage are wary of all kinds of adjustable rate loans these days, but hybrid ARMs can be really good deals even in these times of historically low interest rates, some lending experts insist.

Hybrids are “a great product at a great rate,” says Christopher Cruise, a mortgage broker in Silver Spring, Md.

Currently, starting rates are under 4 percent, generally a full percentage point lower than traditional, 30-year, fixed-rate mortgages. Hybrids are locked in at that starting rate for five, seven, or sometimes even 10 years, then they adjust—usually a maximum of 2 points a year with an overall cap of 6 or 8 points.

In the meantime, the savings on a hybrid ARM can be thousands of dollars and make sense for a buyer who doesn’t expect to be in a home for more than five or six years.

Even if they stay in the same house, it’s likely they’ll have an opportunity to refinance. “Seven years for a mortgage is an eternity these days,” Cruise says.

He recommends that buyers do the math, considering the worst-case scenario. In many cases, particularly with jumbo loans, the savings will still be substantial even if the loan adjusts to the maximum for a couple of years.

Source: United Features Syndicate, Lew Sichelman (05/03/09)