ARM fixed at 3.125%, costing $1,071 in principal and interest per month — a $233 saving.
But now check out the niche where hybrid ARMs really shine: jumbo and super-jumbo mortgages. Generally jumbos range from $417,000 to $729,750, depending on home prices in your local market. Super jumbos can go into the millions.
Say you need a $450,000 mortgage with a 45-day closing and you have a FICO score of 740. According to Green, you should be able to get a 30-year fixed-rate jumbo for around 5.625%. Monthly principal and interest on a fixed-rate jumbo would total $2,590 a month.
Compare that with a $450,000 hybrid 5-1 ARM: 3.5% for the initial five years, requiring $2,020 a month in principal and interest. That’s a rate spread of 2.125 points — “the best we’ve seen in years,” Green said. “It’s very aggressively priced” by banks that want to originate the loans to hold in their own portfolios.
The savings go even higher in the super-jumbo space — a $1- million 5-1 ARM goes for 3.5% and saves a borrower $1,266 a month compared with a competing fixed-rate 30-year loan at 5.6%.
Cathy Warshawsky, president and senior loan officer of Bay Area Loan Inc. in San Jose, cites another advantage for some jumbo borrowers — special enhancements in payment terms.
For example, a client of Warshawsky’s needed a $950,000 mortgage at the lowest rate and monthly payment. She signed him up for a 5-1 hybrid at 5.75%, interest-only.
None of this is to suggest, of course, that hybrid adjustables make financial sense for everybody. They don’t. But if you fit one of the niches they merit a serious look.