30 Year Loans As Low As 3.375% - Are They Real?

Customers call me all the time and say: “Hey, I saw a 30 year loan advertised by another lender for 3.375% on TV, are your rates that low?” The fine print at the bottom of the screen tells you it is an Adjustable Rate Mortgage (ARM), and yes we have rates that low.

ARM’s have a place for qualified buyers who understand the risk and can afford the adjustment; when it comes. Conventional ARM’s come in 3, 5, 7, and 10 year options and vary in rate. Right now, those products can be a very attractive alternative to a fixed rate and they are amortized over the 30 year life of the loan. Fixed rates today are about 4.625%, while a 5 year ARM is 3.375% and a 7 Year is 3.75%, almost a full point savings to the interest rate.

ARM’s are not products designed for borrowers in fixed income positions, or jobs with little opportunity for advancement or pay increases, because the rate will go up and if you cannot refinance you are stuck with a payment you may not be able to afford. Borrowers with reserves in the bank and with increased earning potential may want to look at an ARM as a way to maximize their home investment.

By making extra payments to the principal amount of the loan during the fixed period of your ARM, you reduce the amount that you will need to refinance when your rate increases. Remember that rates at the current time are at historically low levels and if you cannot afford a fixed rate today, you may have difficulty making your payment when that rate adjusts in the future.

A borrower who locks in to the lower adjustable rate now, but makes payments based on the fixed rate monthly amount, could reduce their principal balance and save $20,000-$30,000 in 5-7 years. Then when the rate is schedule to adjust, they can refinance a lower balance amount and still have a lower monthly payment because of the over payment for the last 5-7 years.

Your lender should be having these candid conversations with you at the time of your application, but if it doesn’t make sense to you, it probably isn’t the right loan to consider. If your lender is “pushing” an ARM because it will help you buy more house or have a lower payment, they may not be doing you a favor. Always deal with a reputable lender that is working for your best interest and not just to get “the deal.”


© 2011 Richard Swan
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.