Question: Do you want to buy a house?
Did you answer, YES?
Then, ask yourself these questions: Has your job required a transfer in the past 10 years? Are you buying a starter home? Are you single, but planning to someday get married and have children? Do you plan to retire in the next 10 years? Are you having trouble qualifying for a fixed rate mortgage? Do you expect to move in the next decade? Do you need a jumbo mortgage? Do you believe the country will have significant inflation in the next decade?
If your answer to one or more of these questions also is in the affirmative, you may be a candidate for a “hybrid” adjustable rate mortgage. At Newport Cove, we think the 10-year hybrid ARM is a great financing vehicle. And, be assured, it is not the same old ARM your father warned you about!
Often when Americans move, they think they will stay in their new home “forever.” This is rarely the case. People move because of job changes, retirement, changes in family size, marital status and economic situation. The typical length of home ownership in the U.S. is about five to seven years.
As the length of the mortgage term goes up, so goes the rate of the mortgage. Thus, a 30-year-fixed mortgage is more expensive than a 15-year, and 15-year mortgage more expensive than a five-year. If you know you will be in your home for less than 10 years (or even 12), you are wasting money if you take on a 30-year mortgage.
A hybrid 10-year ARM offers a fixed rate for 10 years, and then an adjustable rate for the next 20. For those who are quite certain that a move is in their future, this mortgage can be just the ticket. For 10 years they will enjoy a much lower monthly payment. If they are still in their home in the 11th year, the mortgage rate will adjust then and every year thereafter, according to the terms agreed to at the beginning of the loan.
Lenders have much more leeway in pricing ARM mortgages versus fixed-rate mortgages. If you decide on an ARM loan, you will find that rates can vary significantly – in some cases, almost two points – from one institution to another. (You will not see this much variance in 30-year fixed rates). In other words, if you are looking at an ARM, it pays to shop!!
At Newport Cove, we are offering special financing on 10-year ARMs for our existing spec homes. For the first two years, qualified buyers will pay a rate of 2.5 percent. The most they will pay in that 10-year period is 4.5 percent. (This program assumes a downpayment of 80 percent. For those who want 90 percent mortgages, Newport Cove can purchase other special financing programs from our lenders.) Thus, for two years, a buyer could be living in our beautiful Highmeadow model home, at right, for a principal and interest payment of just $1,249 per month. And, in the first 10 years, the largest monthly payment the buyer would face would be $1,602 per month. (The sales price of this home is $395,000.)
The hybrid ARM is an interesting alternative to normal fixed rate mortgages. Whenever you borrow, you take on risk. Savvy borrowers decide what risk works best for them in their own unique situation.