Home Buyers Using ARMs To Get Lower Mortgage Rates
Using adjustable-rate mortgages to buy a home; today’s mortgage rates for conforming, USDA, VA, jumbo, and FHA loans; and, how to receive a cash gift for down payment so your mortgage lender allows it.
Buying Using ARMs; Paying For The Years They Need Only
An adjustable-rate mortgage (ARM) may be more appropriate as your next home loan than a fixed-rate one.
Adjustable-rate mortgages are thirty years loans where the interest rate can change over time, based on market conditions and pre-set rules governing how by much rates are allowed to adjust.
ARMs introduce mortgage terminology you don’t see with fixed-rate mortgages:
- Initial period: The number of years until the loan’s first adjustment
- Teaser rate: The starting rate that stays in place until the first adjustment
- Index: A variable interest rate used to set the adjusting mortgage rate
- Margin: A constant value used to set the adjusting mortgage rate
- Cap: The boundary for how much a rate can change when it adjusts
Borrowers can choose the number of years in their loan’s initial period and, in general, a lesser number of years correlates with lower initial interest rates.
ARMs offer initial periods of 3, 5, 7, and 10 years. 15-year ARMs are available, too.
When an ARMs initial period ends, the loan adjusts to a new interest rate. The new interest rate is based on the math of (index) + (margin), where index is often equal to LIBOR, and margin is often set to near 2.500%.
However, as protection for consumers, adjustable rate mortgages are limited by how much they can change from year to year. That cap typically sits at two percentage points per year, which prevents your mortgage from jumping to 20% overnight.
With an adjustable-rate mortgage, you’re sharing in the long-term interest rate risk of a mortgage with your lender. And, in exchange for sharing in that risk, your lender will offer you a lower mortgage rate to start.
ARMs can be an excellent way to save money on your mortgage; paying only for the years you need.
Talk to a mortgage lender about your adjustable-rate mortgage options and see whether choosing an ARM can be a good way to help you buy a home.
Today’s Mortgage Rates & Trends
Mortgage rates are rising today.
With interest rates up, today marks the fourth day out of the last five that home affordability worsened for buyers, and monthly savings dropped for homeowners in search of a refinance.
A look at today’s rates as compared to earlier this week:
- Conforming mortgages: Higher
- FHA mortgages: Higher
- VA mortgages: Higher
- USDA mortgages: Higher
- Jumbo mortgages: Higher
The specific mortgage rate quote you get from a lender will depend on your credit score, the state in which you live, and the size of your mortgage loan.
There are close a dozen factors that comprise your final mortgage rate, which is why you shouldn’t expect the same rate on a loan as your neighbor. Mortgage rates vary from person-to-person and house-to-house.
To get the lowest mortgage rate possible, though, make sure to talk with at least two loan officers as part of your mortgage rate comparisons.
Statistically, it’s proven that there’s a direct relationship between the number of loan officers from which a person gets quotes and the lowness of that person’s final rate and fees.
Speaking to two lenders is good. Speaking to three, four, or five is even better.
Get Today’s Mortgage Rates
How To Receive A Cash Gift For Down Payment
When you’re lucky enough to get cash gifts to help buy a house, be smart enough to receive the cash gift in a way that won’t disqualify your mortgage.
According to data from the National Association of REALTORS®, more than 20 percent of first-time home buyers receive some form of cash as a gift for down payment on a home.
Lenders allow cash gifts and don’t mind when buyers use them to help buy a house. However, lenders account for cash gifts in the same way they account for any cash into a transaction. Paper trails are a must.
Your lender’s biggest concern with cash gifts in the purchase of a home is that the real estate transaction is being used to launder the cash gift; to make ill-gotten, “dirty” money appear clean.
It’s also concerned that the gift is actually a loan and everyone’s lying about it.
To address these two concerns, lenders require a specific series of withdrawal and deposit slips from the giver of the gift and the receiver; and a signed statement attesting that the gift is a gift.
Talk to your mortgage lender about getting a cash gift and the paperwork required. The documentation is straight-forward and simple to collect. But, should you skip this important step, your lender could declare the funds ineligible for use with your purchase.
Read more about down payment gifts and how to receive them.