SECU 2-Year ARM now 3.75 percent (financing, white, black)
Raleigh, Durham, Chapel Hill, CaryThe Triangle Area
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With fixed rates so low and the spread b/w a fixed and an ARM so small, why would anyone get an ARM unless they knew they weren't going to be in their house for very long (< 3 years)?
The reasons I see (going with THIS particular product AT the SECU) are as follows:
1. Like you mentioned, a short stay.
2. Closing costs at the SECU only include a 0.75% of the loan amount fee, plus ~$250 for an appraisal, which is significantly less than others. See here: //www.city-data.com/forum/7565269-post66.html
3. The time it will take this rate to equal what can be had for a fixed rate mortgage (sort of part of #1, say 1a), as discussed here: //www.city-data.com/forum/7564001-post59.html.
4. Refinancing charges of only 0.75% of the loan amount for subsequent refinancing, if necessary.
After all the discussion of pros and cons, I am curious, has anyone gone this route with the SECU?
darman1484: I went ahead and paid the fee to get this lower rate. Since I hold this type of loan already, my only cost was the 0.75% modification fee.
The credit union simply adds the fee to your principal balance so if you prefer to pay the fee out of pocket, simply add that amount to your next monthly payment to pay the principal back down.
Here's how I justified my decision:
Let's assume my current monthly principal and interest payment is $1,000 (it's not) and my loan balance is X. To modify my loan, I pay a fee of 0.075X so my new balance is 1.0075X.
Although my minimum monthly payment decreases, I can elect to continue to make payments of $1,000 each month.
The question I am trying to answer is:
"If I elect to continue the $1,000 monthly payment, how many months will it take for the principal balance of my loan under Alternative 2 (Modify) to become lower than what it would have been under Alternative 1 (Do Nothing)?"
My ARM resets after another 20 payments (this part is true); until then my rate is 4.75% with certainty. If I modify my loan today, I can expect 24 payments at 3.75% with certainty but, for the purpose of comparing two options, I only care about the next 20 payments.
For me, the principal balance under Alt. 2 is lower after just 10 payments. By the 20th payment. It is significantly lower (more than .0075X lower) under Alt. 2 than what it would have been under Alt. 1. Attachment 36755
The particular outcome is unclear after the 20th payment because the rates under Alts. 1 and 2 are unknown. What is clear is that the rate under Alt. 2 will continue to be less than or equal to the rate under Alt. 1 for perpetuity.
So clearly for my situation, paying the fee is equivalent to receiving free money. But for someone who is thinking about refinancing out of an entirely different loan, the outcome might be different.
From bankrate.com
NATIONAL OVERNIGHT AVERAGES
TODAY
30 yr fixed mtg
5.26%
15 yr fixed mtg
4.86%
5/1 ARM
5.53%
30 yr fixed jumbo mtg
6.96%
5/1 jumbo ARM
5.93%
Mine is at 5.5% fixed now. If I were to jump on the 3.75% 2/1 ARM, then worst case, over ten years, the average rate would be 5.75% (3.75+3.75+4.75+4.75...+7.75/10). That is worst case (max 1% increase every 2 years). Now over 30 years, I agree. Worst case there would be 9.35%. That's a lot. For those looking to move in 5 years it might be a good idea (worst case average over 5 years is 4.55%), or even seven years (5.03%).
Let's say the rates only go up 0.5%.
5 year average
4.15%
7 year average
4.39%
10 year average
4.75%
30 year average
7.25%
What am I not seeing?
Is this for 15 day rate locks, 30 or 45? LTV and credit score? Paying closing costs or no closing costs? With an escrow acount or not? What I'm saying is these are average rates and not to be compared to a specific program.
You have to get a customized quote for your specifics to compare apples to apples. I am a broker and see people misled by ads all the time.
That is an awsome rate. I'd take that over a 3.75% ARM any day (as long as the closing cost were low).
That's how I look at it. I love my 4.75% fixed rate, as I never ever have to worry about anything happening. People think these stupid ARM's are good and nothing can happen, then it does. See national situation now.
Quote:
Originally Posted by Sant
With fixed rates so low and the spread b/w a fixed and an ARM so small, why would anyone get an ARM unless they knew they weren't going to be in their house for very long (< 3 years)?
Mostly ignorance about what may happen down the line. People see a number slightly less than another, so they go with it. Look how many people are burned by it now and how much it will cost you and me to bail them out. It's just a real bad move to pick an ARM, especially when the rate is not much different than a fixed.
Quote:
Originally Posted by dad2jules
You have to get a customized quote for your specifics to compare apples to apples. I am a broker and see people misled by ads all the time.
That's what I keep trying to tell people. You can't go by a ballpark number of rate and costs on a website. You need to talk to the loan officer to see what your "real" rate and costs will be. All my numbers came in far below what the website stated. People need to get the real information and actually think about the future a little bit.
Here is the information on the loan straight from the NCSECU website.
State Employees' Credit Union - Adjustable Rate Mortgages (ARM) (http://www.ncsecu.org/Loans/AdjustableMortgage.html - broken link)
2-Year Adjustable Rate Mortgage
Because the interest rate may only be adjusted every two years, this product offers protection against rapidly rising rates1. The rate may not change by more than 1% every two years or 8% over the life of the loan.
Monthly and biweekly repayment options available on new loan originations
Origination fee .75% of the loan amount
100% financing3 available for purchases and "no cash out" refinances of primary residences located in North Carolina or a county adjoining North Carolina if the property is located in South Carolina, Virginia, Georgia or Tennessee
Up to 90% financing available for purchases and refinances of primary residences (home must be in North Carolina or a county in South Carolina, Virginia, Georgia or Tennessee which adjoins North Carolina)
80% financing available for a second home (home must be in North Carolina or a county in South Carolina, Virginia, Georgia or Tennessee which adjoins North Carolina)
SECU does not provide financing for rental properties
1 Future interest rate changes will be determined based on the one year Constant Maturity Treasury (CMT) yield
2 APR = Annual Percentage Rate
3 100% financing up to maximum loan of $400,000. First-time homebuyers and new or relocated State employees (STAR mortgage) are eligible for additional financing up to $1,000 for closing costs. See Special Mortgage Programs for more details.
By the way, one of my lenders locked in my client (who has excellent credit and is putting 20% down) yesterday at 4.6% for a 30 year fixed.
Vicki
That 20% is again a key stat. The SECU loan requires only 10%. Now that doesn't mean it's a better loan than the fixed rate your clients just got. But it does mean it's a better option for SOME buyers.
That 20% is again a key stat. The SECU loan requires only 10%. Now that doesn't mean it's a better loan than the fixed rate your clients just got. But it does mean it's a better option for SOME buyers.
Actually the SECU still does 100%, even on their fixed products.
Actually the SECU still does 100%, even on their fixed products.
I'm speaking about the 3.75% 2 year ARM which has been the basis of most comparisons here. Just as a few posters are making accusations that ARM buyers only see the lower rate, they're being narrow-minded and not seeing the OTHER benefits to this particular loan. For the record, Vickie, the narrow-minded comment isn't directed at you
Since you mentioned FIXED though, often I find that SECU is not competitive on FIXED rates for those who have excellent credit and cash to bring to the table. They are the king of the ARM though. I've used the credit union for as many loans as I have fingers. They're great people to work with.
I'm speaking about the 3.75% 2 year ARM which has been the basis of most comparisons here. Just as a few posters are making accusations that ARM buyers only see the lower rate, they're being narrow-minded and not seeing the OTHER benefits to this particular loan. For the record, Vickie, the narrow-minded comment isn't directed at you
Since you mentioned FIXED though, often I find that SECU is not competitive on FIXED rates for those who have excellent credit and cash to bring to the table. They are the king of the ARM though. I've used the credit union for as many loans as I have fingers. They're great people to work with.
Thanks! I thought I was going to have to get feisty again!
I have had clients use SECU in the past and as you mentioned, their rates on ARMS are much better than most lenders but their rates on fixed loans aren't as good as many other lenders.
Depending on my clients' needs and criteria, I try to direct them to the lender that most suits their needs. Sometimes they find that the lender has other options available for them. Again, there isn't ONE TYPE OF LOAN that fits everyone so it is good to have options.
Thanks! I thought I was going to have to get feisty again!
I have had clients use SECU in the past and as you mentioned, their rates on ARMS are much better than most lenders but their rates on fixed loans aren't as good as many other lenders.
Depending on my clients' needs and criteria, I try to direct them to the lender that most suits their needs. Sometimes they find that the lender has other options available for them. Again, there isn't ONE TYPE OF LOAN that fits everyone so it is good to have options.
Vicki
SECU also blows away other lenders on fixed rates for loans above 80% LTV (5.25 for 90 LTV, 5.75 for 100 LTV, only 1% origination fee, no points, no PMI, in most cases no other fees for refinance except appraisal). Once you hit 80% LTV, then they are not as competitive for people with outstanding credit.
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