Buy or refi with a 5-year ARM for just 2.875%
Pentagon Federal Credit Union is offering one of September's best deals on 5-year, adjustable-rate mortgages.
It's charging borrowers in all 50 states and the District of Columbia an introductory rate of just 2.875% with no points, no fees and a 60-day rate lock.
That's close to half of a percentage point less than the national average for 5/1 ARMs — 3.32 percent.
Your principal and interest payments for the first five years of this loan would be just $415 per month for every $100,000 borrowed under the introductory rate.
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.
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.
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 PenFed 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 5 percentage points over the life of the loan.
Although mortgage rates have defied all predictions 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 4.875% when it first adjusts after five years (not bad), 6.875% at the second adjustment and max out at 7.875%.
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. Yet this loan from PenFed 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 7.875%, your monthly principal and interest payments for this loan would jump up to $725 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.
PenFed is based in Alexandria, Virginia, and enjoys an A+ from the Better Business Bureau. It's federally insured by the National Credit Union Association.
To qualify for this loan, you'll need:
- To be applying for a loan under $417,000.
- Have a credit score of at least 740 (PenFed will drop to 680 in some cases).
- Have at least a 20% down payment.
- Have at least 20% equity in your home if you are refinancing.
- Pay your property taxes and insurance through an escrow account.
- Have 6 months of available assets to cover principal, interest, insurance, property taxes, homeowners insurance and association dues.
You'll also need to be a member of PenFed in order to qualify, which you can do by opening a savings account.
Those not already qualifying for membership by reason of specified military or government service or organizational affiliation may join by signing up, through PenFed’s website, for either the National Military Family Association (a one-time $20 fee) or Voices for America’s Troops (a one-time $15 fee).
Under the “Join PenFed” tab on the website (www.penfed.org), choose the “Help me join another way” option when prompted to answer how you are eligible to become a member.
Members can apply for a mortgage online, over the phone or in person at a Pentagon Federal Credit Union branch.
Keep in mind that 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.
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