BASKING RIDGE, N.J. (8/1/12)--Affinity FCU has introduced an adjustable rate mortgage (ARM) product designed to add stability for home buyers in the aftermath of the mortgage market collapse.
The 5/5 hybrid ARM locks in the original rate for five years, then makes adjustments once every five years thereafter, allowing the borrower to anticipate and budget for mortgage rate adjustments, according to the New Jersey Credit Union League (The Daily Exchange July 31).
The product protects against dramatic rate increases by limiting rate changes to no more than 2% to 3% at each adjustment period and 5% to 6% over the life of the loan, depending on the term. If market rates change 6% to 7% during a five-year period, the borrower's rate will change 2% to 3%, according to the $2.2 billion Basking Ridge, N.J.-based credit union.
The 5/5 ARM is designed to give home buyers the advantages of an ARM while providing more rate stability--a key consideration since the economic collapse, when ARMs came under criticism because borrowers had trouble adjusting to unexpected higher payments.
Affinity FCU's product allows homebuyers to take advantage of low rates at the outset while planning for possible higher rates at a predictable time, knowing that any possible increase will go only so far, the credit union said. And for those who buy during a time of higher rates, the 5/5 ARM protects them from being locked into high rates throughout the mortgage term.