Have you considered an ARM?

At Wings, we offer different Conventional Program product options for our members. One option is a fixed-rate product¹, which gives you a fixed rate for the term of the loan, like 10, 15, 20 or 30 years. For example, if you do a 30-year fixed, your rate is the same for 30 years. Your principal and interest portion of your payment cannot change over that time.

We also offer ARMs—Adjustable-Rate Mortgages².  We have 3 options - a 5/1, 7/1 and 10/1 ARM product.  These programs are amortized over 30 years and locked for the specific term (5 years, 7 years or 10 years respectively). ARMs traditionally offer lower rates based on the fixed term you are considering. Typically, the shorter the fixed term, the lower the rate.  For example, if you were to do a 7/1 ARM, the rate would be locked for the first 7 years with your principal and interest payments being calculated over 30 years.  At Wings, we have no prepayment penalty, so you can pay off your loan early, or potentially refinance at any point. In another blog, we will discuss an amazing option with our ARMs called a modification.  This can help you lower your rate while in the fixed portion of your ARM without having to do a full refinance.

We mentioned “adjustable.”  Let’s set the proper expectations using the 7/1 ARM again as an example. For 7 years, your rate is locked, then come year 8, and every one year thereafter (hence the “1” in the 7/1 ARM), the rate is subject to change. It could go down .5%, up a .25% or stay the same. Unfortunately, we don’t know what the future holds. What we can provide is the worst-case scenario.  For this, there are caps put in place. There is a 2% annual rate cap and a 5% lifetime rate cap. So, what does that mean? It means your rate cannot adjust upward more than 2% annually starting in year 8 (using the 7/1 ARM example). Over the whole life of the loan, your rate cannot be higher than 5% above your initial starting rate.  Worst case, you would hit that cap at year 10.  Also note, these caps apply with rates dropping too. The lowest your rate can go, over the life of the loan, is 5% under your starting rate, with a floor (lowest) rate of 2.75%.

ARMs are a great option to consider if you believe mortgage rates may improve, you plan to stay in the home for a short period of time, plan to pay off your mortgage early, you want a lower payment or you want to afford a little more in a home.

Ultimately, the product you choose needs to be the right fit for you. The Wings Mortgage team would be more than happy to share more information about our ARM products, as well as the modification option.

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¹Payment Example – The APR and monthly payment examples assume a loan amount of $350,000, a 20% down payment, 360 total monthly payments, and $4,896.00 estimated borrower pre-paid finance charges. Monthly payment amount of $2,183.54 assumes a rate of 6.375% and 6.487% APR for a 30-year fixed-rate mortgage. For example purposes only; rates are subject to change without notice. If the down payment is less than 20%, mortgage insurance may be required on the loan and could result in an increased APR and payment.
²Adjustable-Rate Mortgage (ARM) rates are subject to change according to product terms.
Payment Example – The APR and monthly payment examples assume a loan amount of $350,000, a 20% down payment, 480 total monthly payments, and $4,896.00 estimated borrower pre-paid finance charges. Monthly payment amount of $1,895.34 assumes a rate of 5.875% and 6.011% APR for a 40-year ARM. For example purposes only; rates are subject to change without notice. If the down payment is less than 20%, mortgage insurance may be required on the loan and could result in an increased APR and payment.