As a licensed MLO, who has originated numerous ARM's I will add a few things.. 1: You did not once mention "caps" on the loan (initial cap, periodic cap, and lifetime cap) these ensure your interest rate does not exceed more than a certain percentage beyond your starting interest rate. Caps were a safeguard put into place AFTER 2008 to protect homeowner's from payment shock. 2. After your fixed period, whether that be 5 years, 7 years or 10 years; your loan re-amortizes based off of your remaining balance so for example, if you start with a loan amount of $500,000 and after your 5 year fixed period you have $400,000 remaining on your loan, your interest rate will be based off of the $400,000 not your original $500,000 loan amount. 3. Lenders are required by law to give the borrower a 6 month notice BEFORE their rate even changes so there is absolutely no surprises. 4. When the borrower qualifies for an ARM, they have to be able to qualify based off of the absolute highest interest rate/payment based off of the caps I mentioned earlier (specifically the lifetime cap). So if the payment does go up, the borrower is still able to make the payment based off of what they initially qualified for. Other than that, great video, I just feel you left a few important details out.
I have one and it’s not bad. I got mine through my credit union and it is capped. I also do not have to pay for PMI so it’s a trade off. And thank god for the cap given the housing market and the fact that house insurance has increased.
Folks, just a word of experience with buying a home with a higher mortgage rate. I bought an extra home to rent out once at over 8% interest for a 30 year loan. I also paid PMI insurance on top of that, then I rented it out to help make my payment. It was a struggle sometimes, but I managed to hang on to it and refinanced it later at a lower rate, thus also dropping the PMI insurance. So as long as you don’t over extend yourself, it may be a struggle at first, but gets easier as time goes on. It’s beats renting.
I was thinking about getting a 15 year arm. The loan officer said that it's 30 year loan, fixed at 4.75 for the first 15, then can go up 2%, the 16th year, and another the next year, but capped at 5% increase total. Of course 9.75% would be high for the 17th or 18th year, but I also plan to pay the principal down faster by making extra payments in the first 15. Thoughts?
THIS!! An ARM acts as an "equity accelerator", since you get in at a lower interest rate it allows you to have a lower payment for your fixed period. As long as you are disciplined to actually make the extra payments, it would be a phenomenal tool to use and gain a ton of equity in a shorter timeframe. Also as you said by the time your rate actually adjusts (and if it goes up) it will be based off of how much you owe at that time and not your original loan amount. And honestly at that point in time (15 years down the road), if you are still in the home and plan to keep it, you could consider a 10 or 15 year loan dependent where the market is at that time since 15 year loans have better interest rates and your payment could actually go down as well dependent on balance. *KEEP IN MIND THIS DEPENDS ON YOUR LONG TERM GOAL WITH THE PROPERTY* Side note: What the Loan Officer said is absolutely correct, although ARMs are fixed for _ years, they are amortized as 30 year loans. Secondly, you are also correct about the 5% lifetime cap, no matter what, your rate can't go higher than that threshold (lifetime cap), which a lot of people don't know which is why they fear ARMs.
Watch reventure consulting video on property taxes skyrocketing this year this is going to cause a lot of people to sell in other states that do not have prop 13. We are in the perfect storm right now
I know that arm mortgage was 1300; dollars on his arm mortgage then it doubled too 2600 dollars. I just say never get a armed unless you know you are moving.
I just want to know, if I do an 7-1 ARM, after 7 years, if interest rates are 20%, will my interest rate go from 6.5% to 20%?? If so, that sounds stupid
Does a 5 year ARM have a higher rate than a 3 year? same for 10 versus 3, 5 or 7? Why wouldn't someone take a 10yr ARM versus a 3? I'm being offered a 3.1 ARM, wondering if I can bargain for a 5 or even 10 year instead and keep my monthly mortgage the same. Another thought. Say I take a 3.1 ARM at 5%, in three years the 30yr fixed is now 6% so my ARM goes up to 6%. No harm no foul. The rates go up, my rate goes up. I guess if I initially took a 7% 30yr fixed rate loan and after 3 years, the interest rate is now at 8%, I'm locked into the lower rate. Point goes to the fixed rate. But for all scenarios where rates go down, you can refinance the ARM as well as the fixed, correct? Can I turn an ARM into a fixed?
Question, If I want to purchase apartment for $350k, and I'm willing to do 50% down payment .. and eventually pay it off in another 2-4 years. What is my best options ? If I have 15/30 years fixed loans, can I pay the main amount after 2-4 years, or there is limitation and restrictions?
You generally have two main options here. Firstly, you can get a fixed-rate mortgage for either 15 or 30 years, depending on your preference. These loans do not have any penalties for early payoff, which means you could indeed pay off the principal balance after 2-4 years. The second option is going for an adjustable-rate mortgage (ARM) for a short term such as 5 or 7 years. These mortgages usually offer lower interest rates, but are best for people planning to pay off their loan or sell their property before the fixed-rate period ends. Remember, every situation is different and it's always a good idea to consult with a lending professional to evaluate the best options based on your financial scenario and goals.
I need help? I can do a 30 year fixed at 5.20% with 1.3 points or a 10/6 arm at 5.20 with no points. I was told to go with arm because I'm going refinance again once rates hit low 4s the arm allows me too keep my heloc but the 30 year requires me to payoff my heloc? I'm stuck on what I should do?
The ARM Increases after the 5 or 10 year period is up to Current Rate at the time. So they are the same but in a different way. Instead of giving it to people with bad credit or no down payment they give it to anyone now.
@@vinodkmrpv1 true --the option arms were some of the most toxic. But with rate rising fast, and galloping inflation, it would be insane to take out an ARM right now. The 30 year will be 6.5 - 7.0 by the end of this year, and it could go up from there. The Fed is going to start selling its portfolio of MBS in the Summer and will take huge losses, as those things are trading 20% lower than they were last year. Severe recession, rising rates and defaults, and other issues will prevent anyone from refinancing to a better loan down the road.
Would you say my FICO score under mortgage is more that lenders will use ? I am trying to educate myself all different types of loans to see what is best for me . Your videos are so helpful
yes it is. lenders pulled your score based on your risk behaviour while the one you check for free is based on consumer behaviour score. There is a possibilty of +-15/20 on average or sometimes no change at all. but usually their pull will be lower than yours
Hey Jeb, so how are the monthly payments are calculated in 5/1 or 7/1 arm mortgage and what if I want to change it to conventional 30 year after a year if rates go down , would the original home appraisal value be the same when refinancing?
Do you feel a 10/1 or 10/6 is a risky loan? I feel that even with a 20% correction in the market, you should have sufficient time to refinance. There is still a risk, but it's much lower than 3, 5, or 7. Just thinking out loud if I took a 10 year ARM in 2007. The following years the market crashes. Then in 2017 I want to refinance, the market at that point would have mostly recovered and you may even have some decent equity in the home. Of course I'm not ignoring the fact that you need decent credit as well. My thinking is if someone is to do an ARM loan, it should only be a 10 year. The remaining options are way too risky.
We’re going through the process right now. I can get a 7% interest rate for 30 or a 10/1 at 5.5% and risk being able to refinance in 9 years. I’ll 100% take that risk to be able to pay down my loan. 1 after 9 years my loan will be principle about 200k lower, meaning even if my interest shoots up 5% that will be on much less money than the initial was. It’s been 6 months since this video was posted, and people in this comment section said the market would crash by now. Home prices are still high. What happened to the crash smart guys?
If the only way you can purchase a property right now is by using an ARM, you probably should not be purchasing, much less with the added risk. Other than military folks that move around every 3-5 years, I don't see why anyone would want the added risk. Just let the housing market go through a very much needed cooldown and purchase once you can afford it with a fixed rate. Don't let FOMO get the best of you.
There are so many reasons why we decided to buy a home, even though we are looking at ARM as an option. First, we're building a home, which we started back in February. Back then, the rate was 3.75% and we couldn't lock in. Our options are to make it work with what we have, or lose the earnest money we put in. Second, rental prices are sky high. Where I live, it's about $2500-$2800 for a 3 bedroom apartment. Personally, I'd rather pay that into a house.
@@nicole786 seems like you have your specific set of reasons and some bad timing for the build with wood fluctuating and rising interest rates. If you're building, I assume there's a long time horizon planned, so that's good. But, there's still risk involved if the timeline for your introductory rate runs out and you have not had an opportunity to REFI. Frankly, I would try to negotiate with the builder, lumber has dropped in price quite a bit in that same stretch of time. If there's anything that can be postponed for later, I'd shave some cost there. Then again that's just me, everyone is comfortable with different amounts of risk, I do not like ARMs. We've already seen the consequences they can have, and yet here we are again...
What exactly you mean by 7 year fixed or 5 years fixed? Suppose I go for 7/1 arm at 5.5% currently, and then the rate dropped to 4.5% within next 3 years, Can I refinance or I need to wait for 7 years?
conventional and Arms carry the same risk today , 1) if you lose your something bad happen you will lose your home 2) Arms , ten Arms same thing if you can't refinance into conventional loan. if were to do Arms i would do 10yrs Arms and refinance out in year 8 to 9 ,Biden will be out office even before that and rates must get better.
I wouldn't take an arm when the home prices are going to drop. I think that's a good way to be upside down. I'd just wait it out to the market stabilize. House have a ton of equity in them so homes will drop at least 15% so make it make sense!!!!
ARM = 2008 People please stay away from ARMs, legs or what ever the mortgage broker offers you and stick with a 30 year fix rate. Thanks for the information though 👍
Under today's super high interest rates, there will be a percentage of homeowners who will find themselves screwed because they have to eat the higher interest rate, which is probably lower than current refinance rates. Good luck finding thousands of dollars more to pay the mortgage payment per month.
@@JebSmith The higher rate options for someone with an ARM today are: higher rate from the ARM or higher rate if they refinance. Doesn't that accurately describe the two options of someone who needs to adjust their ARM right now? And I didn't claim the majority of homeowners have ARMs. I said a percentage of them.
If you can not buy with a fixed rate you are not ready, regardless of market conditions. Do not gamble your financial future away stick to what you can truly afford 🙏🏻
A loan officer who doesn't understand adjustable rate mortgages??? Hahahahaha. They'd have to be brain dead for that to be true. Understanding these doesn't take an advanced degree.
As a licensed MLO, who has originated numerous ARM's I will add a few things..
1: You did not once mention "caps" on the loan (initial cap, periodic cap, and lifetime cap) these ensure your interest rate does not exceed more than a certain percentage beyond your starting interest rate. Caps were a safeguard put into place AFTER 2008 to protect homeowner's from payment shock.
2. After your fixed period, whether that be 5 years, 7 years or 10 years; your loan re-amortizes based off of your remaining balance so for example, if you start with a loan amount of $500,000 and after your 5 year fixed period you have $400,000 remaining on your loan, your interest rate will be based off of the $400,000 not your original $500,000 loan amount.
3. Lenders are required by law to give the borrower a 6 month notice BEFORE their rate even changes so there is absolutely no surprises.
4. When the borrower qualifies for an ARM, they have to be able to qualify based off of the absolute highest interest rate/payment based off of the caps I mentioned earlier (specifically the lifetime cap). So if the payment does go up, the borrower is still able to make the payment based off of what they initially qualified for.
Other than that, great video, I just feel you left a few important details out.
Great point!
Wow thanjs for this information
When the arm changes can I refinance to the possible lower rate. Or even refinance with in that 5 year period
Sounds like something I might wanna do😅😅.. I wanna double up my payments tbh
I have one and it’s not bad. I got mine through my credit union and it is capped. I also do not have to pay for PMI so it’s a trade off. And thank god for the cap given the housing market and the fact that house insurance has increased.
Folks, just a word of experience with buying a home with a higher mortgage rate. I bought an extra home to rent out once at over 8% interest for a 30 year loan. I also paid PMI insurance on top of that, then I rented it out to help make my payment. It was a struggle sometimes, but I managed to hang on to it and refinanced it later at a lower rate, thus also dropping the PMI insurance. So as long as you don’t over extend yourself, it may be a struggle at first, but gets easier as time goes on. It’s beats renting.
you locked in at 8%???? i’m locked in at 6.4 with PMI and i’m stressing
@@BlameFlames Don’t stress, enjoy that investment.
@@arttaggerr2233 you sure it was a good investment?
@@BlameFlames 👍😎.
@@BlameFlames Just stay with it, and when things turn in you favor, don’t get over confident.
I was thinking about getting a 15 year arm. The loan officer said that it's 30 year loan, fixed at 4.75 for the first 15, then can go up 2%, the 16th year, and another the next year, but capped at 5% increase total. Of course 9.75% would be high for the 17th or 18th year, but I also plan to pay the principal down faster by making extra payments in the first 15. Thoughts?
What lender?
THIS!! An ARM acts as an "equity accelerator", since you get in at a lower interest rate it allows you to have a lower payment for your fixed period. As long as you are disciplined to actually make the extra payments, it would be a phenomenal tool to use and gain a ton of equity in a shorter timeframe. Also as you said by the time your rate actually adjusts (and if it goes up) it will be based off of how much you owe at that time and not your original loan amount. And honestly at that point in time (15 years down the road), if you are still in the home and plan to keep it, you could consider a 10 or 15 year loan dependent where the market is at that time since 15 year loans have better interest rates and your payment could actually go down as well dependent on balance. *KEEP IN MIND THIS DEPENDS ON YOUR LONG TERM GOAL WITH THE PROPERTY*
Side note: What the Loan Officer said is absolutely correct, although ARMs are fixed for _ years, they are amortized as 30 year loans. Secondly, you are also correct about the 5% lifetime cap, no matter what, your rate can't go higher than that threshold (lifetime cap), which a lot of people don't know which is why they fear ARMs.
Thanks for the Break down. It's Important for home owners to know what they getting into..
You bet!
Is another risk of doing a 5 year Arm the possibility that the home is worth less at 5 years thereby possibly preventing being able to refinance?
Yes, definitely a possibility.
If you put down 20% it’s unlikely you’d have negative equity in your home and you’d be able to refinance
As always Jeb .. great job. Very knowledgeable and I admire your calm demeanor!
Watch reventure consulting video on property taxes skyrocketing this year this is going to cause a lot of people to sell in other states that do not have prop 13. We are in the perfect storm right now
Great info. Thank you!
Glad it was helpful!
I know that arm mortgage was 1300; dollars on his arm mortgage then it doubled too 2600 dollars. I just say never get a armed unless you know you are moving.
Great video. Simple enough that even I could understand it. Thanks!
Got yourself a new subscriber!!!!
Does this mean that I can get a 7/1 arm if I plan to pay the total of the house in 5-7 years and keep the same interest rate?
Yes..............assuming you paid off the loan within that fixed term then yes the rate would stay the same.
@@JebSmithWould they charge me a fee for paying the mortgage sooner? Planning on buying my first house
I just want to know, if I do an 7-1 ARM, after 7 years, if interest rates are 20%, will my interest rate go from 6.5% to 20%?? If so, that sounds stupid
Does a 5 year ARM have a higher rate than a 3 year? same for 10 versus 3, 5 or 7? Why wouldn't someone take a 10yr ARM versus a 3? I'm being offered a 3.1 ARM, wondering if I can bargain for a 5 or even 10 year instead and keep my monthly mortgage the same.
Another thought. Say I take a 3.1 ARM at 5%, in three years the 30yr fixed is now 6% so my ARM goes up to 6%. No harm no foul. The rates go up, my rate goes up. I guess if I initially took a 7% 30yr fixed rate loan and after 3 years, the interest rate is now at 8%, I'm locked into the lower rate. Point goes to the fixed rate. But for all scenarios where rates go down, you can refinance the ARM as well as the fixed, correct? Can I turn an ARM into a fixed?
Can you change arm loans to fixed mortgage
yes but refinancing.
Question, If I want to purchase apartment for $350k, and I'm willing to do 50% down payment .. and eventually pay it off in another 2-4 years. What is my best options ? If I have 15/30 years fixed loans, can I pay the main amount after 2-4 years, or there is limitation and restrictions?
You generally have two main options here. Firstly, you can get a fixed-rate mortgage for either 15 or 30 years, depending on your preference. These loans do not have any penalties for early payoff, which means you could indeed pay off the principal balance after 2-4 years.
The second option is going for an adjustable-rate mortgage (ARM) for a short term such as 5 or 7 years. These mortgages usually offer lower interest rates, but are best for people planning to pay off their loan or sell their property before the fixed-rate period ends.
Remember, every situation is different and it's always a good idea to consult with a lending professional to evaluate the best options based on your financial scenario and goals.
@@JebSmith Thanks for reply!
I need help?
I can do a 30 year fixed at 5.20% with 1.3 points or a 10/6 arm at 5.20 with no points. I was told to go with arm because I'm going refinance again once rates hit low 4s the arm allows me too keep my heloc but the 30 year requires me to payoff my heloc? I'm stuck on what I should do?
If you’re buying a house within your means, you should be able to easily pay it off in 10 years
do they have a 3/1 ARM?
They used to but not sure there's a 3/1 these days. I'm sure it's out there just not as common
So adjustable are for real estate flipper s or if I want live in the property fix up a bit then refinance to a 30 year or I can sell property?
Thanks I learned about ARMs finally. And now I understand why pretty much everyone around me I know highly discourages them.
It's because many remember the last housing crash when arms were a big reason we saw so many defaults.
The only things you need to know about ARMs is that they were one of the main contributors to the housing crash of 2008, and should be avoided.
True.
They were definitely a piece of the puzzle.
It was not regular arm mortgages that caused the crash. It was interest only arm mortgages given out to borrowers with bad credits and no downpayments
The ARM Increases after the 5 or 10 year period is up to Current Rate at the time. So they are the same but in a different way. Instead of giving it to people with bad credit or no down payment they give it to anyone now.
@@vinodkmrpv1 true --the option arms were some of the most toxic. But with rate rising fast, and galloping inflation, it would be insane to take out an ARM right now. The 30 year will be 6.5 - 7.0 by the end of this year, and it could go up from there. The Fed is going to start selling its portfolio of MBS in the Summer and will take huge losses, as those things are trading 20% lower than they were last year. Severe recession, rising rates and defaults, and other issues will prevent anyone from refinancing to a better loan down the road.
Great Content Great Value especially now!!!
Would you say my FICO score under mortgage is more that lenders will use ? I am trying to educate myself all different types of loans to see what is best for me . Your videos are so helpful
yes it is. lenders pulled your score based on your risk behaviour while the one you check for free is based on consumer behaviour score. There is a possibilty of +-15/20 on average or sometimes no change at all. but usually their pull will be lower than yours
Hey Jeb, so how are the monthly payments are calculated in 5/1 or 7/1 arm mortgage and what if I want to change it to conventional 30 year after a year if rates go down , would the original home appraisal value be the same when refinancing?
No, they would do another appraisal
Always so informative. Love
Thanks so much!
Good jobs 👍
Do you feel a 10/1 or 10/6 is a risky loan? I feel that even with a 20% correction in the market, you should have sufficient time to refinance. There is still a risk, but it's much lower than 3, 5, or 7.
Just thinking out loud if I took a 10 year ARM in 2007. The following years the market crashes. Then in 2017 I want to refinance, the market at that point would have mostly recovered and you may even have some decent equity in the home.
Of course I'm not ignoring the fact that you need decent credit as well.
My thinking is if someone is to do an ARM loan, it should only be a 10 year. The remaining options are way too risky.
This needs to be answered
I’m looking at 10/6 and need this question answered
We’re going through the process right now. I can get a 7% interest rate for 30 or a 10/1 at 5.5% and risk being able to refinance in 9 years.
I’ll 100% take that risk to be able to pay down my loan.
1 after 9 years my loan will be principle about 200k lower, meaning even if my interest shoots up 5% that will be on much less money than the initial was.
It’s been 6 months since this video was posted, and people in this comment section said the market would crash by now.
Home prices are still high. What happened to the crash smart guys?
If the only way you can purchase a property right now is by using an ARM, you probably should not be purchasing, much less with the added risk.
Other than military folks that move around every 3-5 years, I don't see why anyone would want the added risk. Just let the housing market go through a very much needed cooldown and purchase once you can afford it with a fixed rate. Don't let FOMO get the best of you.
10 year is honestly very low risk, however a 3, 5, and 7, well we're in agreement there
There are so many reasons why we decided to buy a home, even though we are looking at ARM as an option. First, we're building a home, which we started back in February. Back then, the rate was 3.75% and we couldn't lock in. Our options are to make it work with what we have, or lose the earnest money we put in. Second, rental prices are sky high. Where I live, it's about $2500-$2800 for a 3 bedroom apartment. Personally, I'd rather pay that into a house.
@@nicole786 seems like you have your specific set of reasons and some bad timing for the build with wood fluctuating and rising interest rates. If you're building, I assume there's a long time horizon planned, so that's good. But, there's still risk involved if the timeline for your introductory rate runs out and you have not had an opportunity to REFI. Frankly, I would try to negotiate with the builder, lumber has dropped in price quite a bit in that same stretch of time. If there's anything that can be postponed for later, I'd shave some cost there. Then again that's just me, everyone is comfortable with different amounts of risk, I do not like ARMs. We've already seen the consequences they can have, and yet here we are again...
I need Jim Carrey in Yes Man as my loan officer to hook it up with something better then since ARMs aren't for me.
What exactly you mean by 7 year fixed or 5 years fixed? Suppose I go for 7/1 arm at 5.5% currently, and then the rate dropped to 4.5% within next 3 years, Can I refinance or I need to wait for 7 years?
conventional and Arms carry the same risk today , 1) if you lose your something bad happen you will lose your home 2) Arms , ten Arms same thing if you can't refinance into conventional loan. if were to do Arms i would do 10yrs Arms and refinance out in year 8 to 9 ,Biden will be out office even before that and rates must get better.
What about if the first 10 years are locked at a low rate?
For the right person it's a good deal but it's not for everyone.
If you like to gamble, ARM loans are for you.
There's definitely some risk, no doubt.
I wouldn't take an arm when the home prices are going to drop. I think that's a good way to be upside down. I'd just wait it out to the market stabilize. House have a ton of equity in them so homes will drop at least 15% so make it make sense!!!!
ARM = 2008
People please stay away from ARMs, legs or what ever the mortgage broker offers you and stick with a 30 year fix rate.
Thanks for the information though 👍
Thanks Hector.
Under today's super high interest rates, there will be a percentage of homeowners who will find themselves screwed because they have to eat the higher interest rate, which is probably lower than current refinance rates. Good luck finding thousands of dollars more to pay the mortgage payment per month.
Why would they have to eat the higher rate? Why wouldn't they refinance? Do you realize that 94% of homeowners have a fixed rate?
@@JebSmith The higher rate options for someone with an ARM today are: higher rate from the ARM or higher rate if they refinance. Doesn't that accurately describe the two options of someone who needs to adjust their ARM right now? And I didn't claim the majority of homeowners have ARMs. I said a percentage of them.
If you can not buy with a fixed rate you are not ready, regardless of market conditions. Do not gamble your financial future away stick to what you can truly afford 🙏🏻
Wells Fargo just fired 550 mortgage processors this morning. Clearly they know what’s coming. 🚨
Housing market finance downturn.
🤣
They're probably temp workers
A loan officer who doesn't understand adjustable rate mortgages??? Hahahahaha. They'd have to be brain dead for that to be true. Understanding these doesn't take an advanced degree.
Agreed but do you know how many loan officers out there can't explain these in detail. Too many, unfortunately.
Ahh hell nah
They're not for everyone.
🤣
Dude, your head is giant
I know, right?
I just hope anyone watching isn't using one long term.
💯
Stay away from Arms