Tuesday
October 21, 2014

More Luxury Home Buyers Opt for ARMs

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More Luxury Home Buyers Opt for ARMs

Once blamed as one of the culprits behind the flood of foreclosures in recent years, adjustable-rate mortgages are back and rising in popularity, particularly among luxury home buyers, The Wall Street Journal reports. 

ARMs are offering super low interest rates—at least for a certain period—compared to fixed-rate mortgages that are tempting home buyers once again. ARMs can have a fixed-rate mortgage rate for a certain number of years, such as five or seven years, before they start fluctuating with the market and the monthly mortgage payments start rising. 

For home buyers who need a jumbo loan, ARMs are particularly tempting. ARMs make up 30 percent to 40 percent of the private jumbo market at Bank of America, The Wall Street Journal reports. They make up about half of all private jumbos 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.

As such, high-end buyers are considering ARMs to finance their home purchases and unlocking some savings. For example, the rates could be as low as 2.82 percent on a jumbo 5/1 ARM, compared to 4.06 percent on a 30-year fixed-rate jumbo loan, according to HSH.com, a mortgage information web site. “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,” The Wall Street Journal notes.

Source: "Buyers Run Back Into Open-Ended ARMs," The Wall Street Journal (Oct. 19, 2012)