Buy or refi with a 5-year ARM for just 2.563%
TIAA Direct is offering one of August's best deals on a 5-year adjustable-rate mortgage.
It's charging borrowers in all 50 states and the District of Columbia an introductory rate of just 2.563% with one point, around $1,300 in fees and a 60-day rate lock.
A point is a fee that's equal to 1% of the loan amount. So on a $100,000 loan, a point would be equal to $1,000. That means you'd have to pay an additional $1,000 to get this deal, but the nice low rate might be worth it.
TIAA is charging over four-fifths of a percentage point less than the national average of 3.38% for 5-year ARMs.
Think you can you do better? Click here to compare this deal with the best mortgage rates from scores of other lenders in your area.
Your principal and interest payments for the first five years of this loan would be just $398 per month for every $100,000 borrowed under the introductory rate.
You can use our adjustable-rate mortgage calculator to determine the monthly payment for the exact amount you want to borrow with this or any home loan.
It will also provide a month-by-month amortization schedule that shows how much you've reduced your debt, how much you still owe if you want to pay off the loan and where your maximum monthly payment could end up.
There's a chance that you'll find lenders offering ARMs with lower rates, but it's important to check their interest rate caps before you sign up.
Rates on some of these loans can increase as much as five percentage points when they reset the first time.
The interest rate caps for this ARM from TIAA won't do that. They are 2/2/5, which means the interest rate can't go up more than:
- 2 percentage points the first time it adjusts in five years.
- 2 percentage points each year after that.
- A total of more than 5 percentage points over the life of the loan.
Although mortgage rates have defied all predications and declined so far this year, it's a pretty safe bet that rates will move higher, perhaps substantially higher, when this loan first adjusts in five years.
That means your rate could hit 4.563% when it first adjusts after five years (not bad), 6.563% at the second adjustment and max out at 7.563%.
Like most adjustable-rate loans, this option is best for borrowers planning to sell, or at least refinance, before the first adjustment, depending on where rates are at that time. Of course, this loan from TIAA might allow you to wait until the second adjustment due to the low intro rate and modest rate cap adjustments.
But either way, in case you can't sell or refinance, it's important to make sure you can still afford the monthly payments if you're stuck with this loan for more than five years. At 7.563%, you're monthly principal and interest payments for this loan would jump up to $704 per month for every $100,000 borrowed.
And don't forget to factor insurance, property taxes and association fees into the payment, which can really bump up your monthly check to the bank.
TIAA Direct is the online bank of TIAA-CREF Trust Co., a major investment company that manages the retirement funds for 3.7 million Americans who work in academia, research, medicine and the arts. It's based out of Charlotte, N.C., and enjoys an A+ grade from the Better Business Bureau.
To qualify for this loan, you'll need:
- A credit score of 740 or higher.
- A down payment of at least 25% if you're purchasing.
- At least 25% equity in your home if you're refinancing.
- To be applying for a loan of less than $417,000.
- 15 days of prepaid interest.
You don't want to drain your savings and take on mortgage payments that you are struggling to make every month. Here's how to find the price range that's right for you.