Loan Products to Help You Achieve Your Homeownership Goals
By Richard Mantyla
Many Alaskans have had the opportunity to reach their homeownership goals. But that’s not the reality for everyone. Are you looking to move into your first home, upgrade or downsize from your current home, or finally build your dream home? Don’t let movement in interest rates make you hesitant to take that next step. There are loan products available to help you achieve your housing goals. Two of those products are the adjustable-rate mortgage and the long-term rate lock.
If you’re considering building a home, a long-term rate lock is one of the most beneficial products. For a fee, you can lock in a mortgage interest rate for up to 360 days. This product generally allows you a one-time float down of the locked rate if rates decrease. This provides you the comfort to focus on picking out your dream upgrades and options rather than stressing about rates and qualifying.
Another beneficial product is an adjustable-rate mortgage. ARMs got a bad rap in the 2000s due in part to option ARMS and loose underwriting guidelines. Option ARMs allowed a borrower several different payment options that could result in negative equity in their home. Current ARMs protect the borrower by offering a fully amortized payment. Also, in the past, most ARM products had an interest rate that was only fixed for 6 months to one year. Today ARMs have an initial fixed rate period of 5, 7 or 10 years.
What makes an adjustable-rate mortgage attractive to borrowers? They have a lower initial interest rate than a traditional year fixed rate mortgage. However, ARMs are still a mystery to many, so let’s break down the components:
Initial lower rate - ARMs initially have a lower interest rate than a traditional fixed-rate mortgage and are tied to a market index.
Fixed Interest Rate Period - There is the initial fixed interest rate period.
Adjustable Rate Period - Following the initial rate period there is an adjustment period when the rate can change every 6 months or one year.
Interest Rate Cap - ARM’s have a cap limit on how much the interest rate can change over the lifetime of the loan.
ARM loans allow you to take advantage of a lower monthly payment for a fixed period of time versus more traditional loan products.
For example, a 5/6 ARM with 2/1/5 caps, has a fixed initial interest rate for 5 years and the rate can adjust every 6 months starting on the 61st month. The first-rate adjustment cannot be more than 2% and each subsequent adjustment cannot be over 1% with a lifetime cap of 5% over the initial interest rate.
“Marry the house, date the rate,” is one of the most relevant quotes I’ve come across recently in regards to how to approach buying right now. Rate environments have seasons and loans can be refinanced if rates go down or circumstances change but investing in a home is still a good bet!
With appreciation continuing to grow at reasonable rates, homeownership is still a great way to build net worth and research shows it benefits and strengthens communities. The important thing to remember is there are many loan programs and products that may help give you the certainty to take that next step.
RICHARD MANTYLA, NMLS #196418, is an experienced and knowledgeable mortgage loan originator (MLO) at Residential Mortgage. He’s worked as an MLO in Anchorage since 1984. He was one of Alaska Housing Finance Corporation’s top closing lenders in 2018, 2019 and 2020.
Residential Mortgage, LLC NMLS #167729
100 Calais Drive, Anchorage, AK 99503
there are many loan programs and products that may help give you the certainty to take that next step.