Gravell explained that as the yield curve climbed steadily through the end of 2020 and into 2021, the monthly savings on the ARM loan, which were previously less than $ 100 and therefore not worth the rate fluctuations for most borrowers, are now in the hundreds. dollars a month or thousands a year. As this picture changes, ARM loans become more attractive to a certain class of borrowers.
Gravell described the ideal ARM borrower as one who does not lay permanent roots. The first home buyers to buy to get to the market but will want to upgrade to a starter home when they have kids. These borrowers will receive savings on their monthly payment, which comes along with the ARM loan, before moving into their “forever home” for a set 30-year period. However, this also raises the need to closely monitor the interest rate situation and ensure that the right action is taken before the spiral of monthly payments spirals out of control.
While it is difficult for aspiring homebuyers to get deals with 30-year fixed loans, Gravell noted that ARM products can help. Marketing at this lower fee and the potential for a buyer to relocate due to higher property prices to their next home can make a difference for brokers and originators looking to increase their volume in a limited market.
“Brokers are very smart,” Gravell said. “And professionals in this business know how to meet demand with products that can best serve their customers. And while ARM has been dormant for a while, anyone who has been in the business for 10 years or more knows when to upgrade to a product to meet the needs of their customers. As markets change and the curve either continues to rise or stays at the same level as it is now, it will become more prevalent.