Gravelle explained that monthly savings on an ARM loan, which used to be less than $ 100 and therefore not worth the volatility in interest rates for most borrowers, are now in the hundreds as the yield curve moves through 2020 and into the year 2021 has steadily steepened dollars a month or thousands a year. As this picture changes, ARM loans are becoming more attractive to a particular class of borrowers.
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Gravelle described the ideal ARM borrower as one who doesn’t put down permanent roots. The first-time home buyers who buy to get into the market but want to get out of the starter home when they have kids. These borrowers take the savings on their monthly payment that comes with the ARM loan before moving into their “forever home” and setting the 30 year solidity. Linked to this, however, is the need to closely monitor the interest rate situation and ensure that the right steps are taken before the monthly payment gets out of hand.
With first-time home buyers struggling to get 30-year fixed loan deals, Gravelle found that ARM products can help. Marketing on that lower payment and the potential for a buyer to drive the house price appreciation into their next home could make all the difference for brokers and originators looking to increase their volume in a tight market.
“Brokers are super savvy,” said Gravelle. “And professionals in this business are good at meeting demand with the products that can best serve their customers. And although ARMs have been inactive for some time, anyone who has been in business for 10 years or more knows when to switch to a product to meet their customer needs. As the markets change and the curve either continues to steepen or stay where it is now, it will occur more frequently.