Longer term ad­justable rate mort­gage saves buy­ers $68,000

Stamford Advocate - - Real Estate - Terry Hast­ings Terry Hast­ings, To­tal Mort­gage Ser­vices, 203-470-5434, Ter­ryHast­ings.com

Mort­gage banker: Terry Hast­ings

Home value: $ 750,000

Loan amount: $600,000

Loan terms: 4.5 15/1 arm

Back­story: Hast­ings re­ceived a call from a cou­ple who was re­ferred by their Re­al­tor. They were think­ing of pur­chas­ing a home but were con­cerned about the sharp rise in in­ter­est rates over the past year. How were other peo­ple deal­ing with it and what were their op­tions?

Hast­ings first col­lected in­for­ma­tion about their in­come and as­sets to pre-ap­prove them for a mort­gage loan. He ex­plained that the type of loan was based upon a num­ber of ques­tions, in­clud­ing how long they in­tended to oc­cupy their home and if they ex­pected any life or ca­reer changes that could al­ter their plans.

The bor­row­ers were told by their par­ents to al­ways get a 30-year mort­gage be­cause they felt the ad­justable in­ter­est rate was far too risky.

Hast­ings ex­plained to them that if they were think­ing longterm, the short ad­justa­bles were in­deed a risk. An ad­justable rate mort­gage freezes the rate for an agreed upon num­ber of years and then changes ev­ery year af­ter­wards based upon mar­ket con­di­tions.

In the past, there were three, five, seven and even 10-year ad- justable loans, but th­ese made the buy­ers ner­vous.

Hast­ings told them about a new loan out that was a 15-year ad­justable. While the rate was frozen for 15 years, it was still based upon a 30-year term. Be­cause it was an ad­justable, the rate was .625 per­cent cheaper than the 30-year fixed sav­ing $225 ev­ery month! The bor­rower still wasn’t con­vinced and Hast­ings ex­plained an­other ben­e­fit.

If the bor­rower took the 15/1 arm with the $225 sav­ings over the 30-year fixed and ap­plied it to his monthly pay­ment, it would pay his loan off faster since the ex­tra money would go di­rectly to­ward his prin­ci­pal. Their loan bal­ance af­ter 15 years on the con­ser­va­tive 30-year loan would be about $408,000, but the rapid pay­off on the 15-year arm with only $225 per month added would make the bal­ance $340,000, a sav­ings of $ 68,000.

Worst case, even if they wanted to re­fi­nance, the lower bal­ance would drop their pay­ment.

Based upon Hast­ings’ ex­pla­na­tion and the mort­gage math, the buy­ers went with the ad­justable rate.

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