Adjustable-rate mortgages, blamed for the mortgage crisis and since banished, are making what appears to be a comeback.
A Bank of America spokesman told the NY Times that ARMs now account for 10 percent of their production.
The Charlotte-based mortgage lender is the second largest behind the almighty Wells Fargo.
Of course, high-risk ARMs like the infamous option arm aren’t coming back (yet) – rather, hybrid ARMs such as the 5/1 and the 7/1 ARM are increasing in demand, per mortgage brokers cited by the publication.
These loan programs are fixed for the first five or seven years, respectively, before becoming annually adjustable-rate mortgages.
This gives even the most risk-averse borrower some comfort, though if you plan to stay in your home for the long-haul, they aren’t necessarily the ticket.
Last week, the popular 30-year fixed mortgage averaged 4.76 percent, while the 5/1 ARM was going for roughly 3.57 percent.
This represents nearly a 1.25 percent difference in mortgage rate, or about $200 in monthly mortgage payment relief on a $300,000 home loan.
Over five years, you’re looking at about $12,500 in savings, but then the rate goes adjustable – so obviously there is a fair amount of risk, especially since mortgage rates are historically low and will probably rise in the near future.
But still, for the short-term borrower, ARMs don’t sound as toxic as they used to.
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