* Low rate that only adjusts every 5 years for 30 years * Rate would adjust up to 2% or our prevailing rate, whichever is the lowest * Maximum lifetime adjustment that will not exceed 5% above the initial rate
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APR Calculation: 5 year Treasury Note Margin of 1%
Reset Rate Calculation: The LOWER of the following: 1) The then prevalent 5/5 ARM rate 2) 5 year Treasury Note Margin of 1% rounded to the nearest 1/8th of a percentage
Combo Loans Minimum of 10% down Options for 2nd mortgage on 1/3/08 (YMMV) 5 year term at 7.24% 10 year term at 7.49% 15 year term at 8.49% 20 tear term at 8.99%
Message edited by: KHTC on 2010-02-03 19:38:05 CST
Holy crap, this is hot. Their prevailing rates are always at market levels or below. Worse comes to worse, if it resets higher, you can always refinance it.
therivler1 said:hate2work said:Isn't this just a 5 year ARM? What's the difference? Rate would adjust up to 2% or our prevailing rate, whichever is the lowest
Thrilla said:Holy crap, this is hot. Their prevailing rates are always at market levels or below. Worse comes to worse, if it resets higher, you can always refinance it.
If the rates are good after every 5 year this is a great program or if you plan to sell it in 5 years then also it is a good program. However, worst case scenario would be if the interest rate might be real high and refinancing would be real bad 5 years later. In fact, if it is very high you would be still better off with the 2% limit increase from Pen Fed then refinancing. However, in that case you would think at the time that you should have locked in 30 year fixed when you had a chance. Some risk but not bad.
Still, this is an awesome loan product by all means. Especially for people who are in refinance market and they are hammered with a huge increase since they were or ARM before.
therivler1 said:hate2work said:Isn't this just a 5 year ARM? What's the difference? Rate would adjust up to 2% or our prevailing rate, whichever is the lowest Interesting note in the disclosure: Your interest rate will never be less than 1.00 % over the term of the loan.
Thrilla said:Holy crap, this is hot. Their prevailing rates are always at market levels or below. Worse comes to worse, if it resets higher, you can always refinance it.
"..you can always refinance it."? I have had people (lenders) tell me that before, but there is a flaw in the reasoning. What if you purchase an overpriced house with little or no money down? For example, let us say you purchase a $500k 3/2 SFR in SoCal with this loan. In five years, the housing market has dropped and your house is now worth $400k. Do you think a lender would let you ReFi a $480k loan backed up by a house worth $400k? NO. You cannot ALWAYS refinance it. Some people are discovering this as we speak.
That said, I love PenFed and their products. 5/5 is a still good option for some people. As they say, "If you can find a better deal, TAKE IT!"
Just spoke to a CSR about the odd looking 5.625% rate with a 5.377% APR. He said that the APR includes a 1% margin that is not reflected in the rate. I dont know what he meant but clearly after 60 months, the rate will be the LOWER of 7.625% or then prevailing rate.
Now if we can compare the mortgage rates on a weekly basis to find out what the rates from a similar housing period looked like....
manuvns said:what is counted as prevailing rate ? is it 30 yr fixed rate ?
From the website:
"Your interest rate will be based on the lesser of an index plus our margin or the Lender's then- current interest rate for its 5 Year Treasury Index/5 Year Rate Adjustment loan product. The index is the weekly average yield on United States Treasury securities adjusted to a constant maturity of five years."
Basically this means the following: -- Lock in your rate at 5.5% today -- In five years pay the lower of { 5.5+2=7.5% } or { Existing rate on the 5/5 ARM } -- Repeat this every five years.
As per the CSR, the existing rate on the 5/5 ARM is indexed to the 5 Year Treasury Index.
Also as per the CSR, the margin on this product is 1 point (Hence low APR). This is HUGE, IMHO. Usually the margin on 5/1 ARMs is 2.5 - 3 points. Hence while others are paying a rate of x% + 3% on their adjusted rate, you are paying only lesser of { (x% + 1%) , (7.5%) } for five whole years! Whatever x% is in five years, this is a great deal. Awesome!
Some questions: What is the DTI ratio needed (debt to income)? Also, what LTV do you need to stay under to qaulify? Is there PMI if your over 80% ltv? Do you need to be in home for at least a year before they take new value vs. the purchase price? Do they take independant appraisal or use there own appraisers? Do they roll closing costs into the refi or can you pay upfront? Thanks.
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You cannot ALWAYS refinance it. Some people are discovering this as we speak. 
