Mortgage borrowers usually must
decide between low rates or a long term. But one lender says you can have both.
Pentagon
Federal Credit Union, the Alexandria, Va.-based credit union known as PenFed,
has rolled out a 30-year amortizing mortgage that changes its rate just once,
15 years into the term of the 30-year loan. The credit union will be writing
loans with the 15/15-adjustable rate mortgage up to $2 million.
PenFed
says the product, launched in February, is designed to appeal to borrowers who
are typically looking to refinance or purchase a second home, says Debbie Ames
Naylor, executive vice president of mortgages at the federal credit union.
While
the interest rate for PenFed's 15/15 ARM is fixed for the first 15 years, the
monthly payment is still calculated over a 30-year amortization schedule, Ms.
Naylor said. The loan rate change after the first 15 years is capped at a
maximum of 6 percentage points on top of the original rate; so that a loan that
is at 3.75% for the first 15 years can't rise any higher than 9.75%.
For a $1
million jumbo loan with the 15/15 ARM, the monthly principal-and-interest
payment would be $4,560 at PenFed's recent rate of 3.625%, compared with a
30-year fixed loan for the same amount with a rate of 4.25% and a payment of
$4,919. The interest savings on the first 15 years using the 15/15 ARM would be
more than $86,000, PenFed says. "We're trying to give a lot of stability
and value back to the borrowers," Ms. Naylor said.
Jeanine
Hawk and her husband, Michael, refinanced their San Francisco home this year
with a PenFed 15/15 mortgage. They closed the 3.85% jumbo loan after reading
about it in a local newspaper. "It seemed like the right compromise for
us," said Ms. Hawk, 54, who is completing her doctorate at San Francisco
State University. Her 61-year-old husband works at the League of Conservation
Voters in Oakland, Calif. "We're planning for our retirement and we wanted
to be certain about our income stream," she said.
So far, the lender says it has
received about 600 applications for 15/15 loans. It has closed 100, split
almost evenly between purchases and refinances. About 30% of the closed loans
were jumbos. (Jumbo loans are those above $417,000 in most markets, and more
than $625,500 in high-price markets such as New York and San Francisco.)
The
15/15 mortgage isn't really new, said Fowler Williams, president of Crescent
Mortgage in Atlanta, a mortgage lender that partners with community banks and
credit unions to provide mortgages. Mr. Williams said that banks and other
institutions have offered products with a "two-step" ARM, when the
rate just flips one time, but typically the first rate change comes at either
seven or 10 years, not at 15 years.
Click here
for the full article in the Wall Street Journal.