Banker saves physicians thousands with 5/1 adjustable loan

Mortgage banker: Harry Sessa Property type: Owner-occupied condo

Mortgage type: 5/1 ARM Purchased price: $299,000 Loan amount: $284,050 Backstory: Alan Greenspan, one of the most highly respected Federal Reserve Chairmen in history once said “95 percent of home buyers should not be in a 30-year fixed rate mortgage.”

Harry Sessa recently had two first-time home buyers relocating to work at a major hospital in the New Haven area. The primary borrower had been hired as a resident physician for the hospital. They were moving from Cleveland where their family had been for many years.

These borrowers didn’t have a great deal of down payment money available. They were also very sure that at the end of the residency they would be going back to the Cleveland area to work and live close to their family.

Sessa suggested they apply for a Citizens Bank Physicians Loan, which only required 5 percent down with no mortgage insurance and had reasonable guidelines with respect to student loans, which are normally counted in the debt-to-income ratio.

In addition, Sessa advised him to go into a 5/1 Adjustable Rate Mortgage where the rate is locked for five years before its initial adjustment at a much lower rate than the benchmark 30-year fixed mortgage.

The ARM, which was also calculated on a 30-year term (amortization), allowed them the benefit of considerably lower payments and saved Sessa’s borrowers a considerable amount of interest over the first five years — more than enough to cover the down payment cost.

Unfortunately, many home buyers gravitate toward a 30-year fixed because that’s what their relatives or friends had and they are overwhelmed with potential worries about rate increases. The fact is, as Greenspan suggested, the average term of the loan in America today is a little over seven years.

Homeowners simply move, upgrade or refinance more often than anticipated, putting the majority of people who get 30year, fixed mortgages in a position where they have certainly paid much more interest than they could have.

The clients will be closing with Citizens soon and are exceptionally grateful for both the doctor program and Sessa’s advice on a 5/1 ARM product alternative.

Harry Sessa, Senior Loan Officer, Citizens Bank, NMLS 632510, 203-494-1478, hds1010@rcn.com