Analysis of PenFed's 5/5-year ARM Loan Product

[usctrojancpa]

Has anyone used this program recently.

Is it worth the risk of taking a 5/5 ARM loan when the 30 year conforming is so low (4.25%)?

Typically what is the spread that should be between a program like this and a 30 year conforming?

I am doing my math and the differences in payment is about $325 for the first 5 years. The breakeven point is less than 11 years. This is assuming that the 5/5 ARM starts at 3%. (it is currently at 3.25% but I would probably buy it down).  I can also save the $325 for the first five years which amounts to ~ $20K and pay down the principle.

Thanks in advance for the opinions.

Actually, assuming there is a 1.50% spread between the 5/5 ARM and the 30-year fixed rates the break-even will be 13-14 years depending upon what inflation factor you use (this is also assuming the WORST case scenario in terms of interest rate increases during the adjustment periods).  As the spread between the 2 loan shrinks, the shorter the break-even period will be and vice versa.  Remember that people on average sell their homes about every 7 years or so.  Why pay more for insurance (i.e. a higher fixed rate interest rate) when you might not even be able to benefit from it?

 

[25inirvine]

What is the downpayment requirement for this?  I saw someone mentioned 25% to get out of impounding pmts but nothing about downpayment.

My plan would be to use the 5/5 ARM but continue paying the 30 year or 15 year pmt.  If I did my math right, if you pay the 30 month payment on the 5 year arm, your actual required payment will still be cheaper than a 30 year fixed after the 5 year reset even if it jumps 2%.  Does this sound right?

Also, just curious what is the spread on this usually in a more normal interest rate environment?  Like say a 30 year fixed is in 6% area..will this say in the 3's? or will this come closer to 4-5%?

 

[rickr]

What is the downpayment requirement for this?  I saw someone mentioned 25% to get out of impounding pmts but nothing about downpayment.

My plan would be to use the 5/5 ARM but continue paying the 30 year or 15 year pmt.  If I did my math right, if you pay the 30 month payment on the 5 year arm, your actual required payment will still be cheaper than a 30 year fixed after the 5 year reset even if it jumps 2%.  Does this sound right?

Also, just curious what is the spread on this usually in a more normal interest rate environment?  Like say a 30 year fixed is in 6% area..will this say in the 3's? or will this come closer to 4-5%?

I just talked to them today. 20% down required if loan is greater than $417,000. If less than 10% . The best part is that it is locked for 90 days. You can lock for 180 days if you pay .875 points up front.

 

[usctrojancpa]

What is the downpayment requirement for this?  I saw someone mentioned 25% to get out of impounding pmts but nothing about downpayment.

My plan would be to use the 5/5 ARM but continue paying the 30 year or 15 year pmt.  If I did my math right, if you pay the 30 month payment on the 5 year arm, your actual required payment will still be cheaper than a 30 year fixed after the 5 year reset even if it jumps 2%.  Does this sound right?

Also, just curious what is the spread on this usually in a more normal interest rate environment?  Like say a 30 year fixed is in 6% area..will this say in the 3's? or will this come closer to 4-5%?

You have to put 20% down to get the loan and 25% down to waive impounds.  If you pay additional each month it will bring down the loan balance which will reduce the impact of an future interest rate increases.  You'd have to do the math to see how to works out. 

In a normal economy with a steap yield curve I've seen the the difference between the 5-year bond and a 10-year bond be more than 2%.  I'd have to go back and look at the charts but I think 5-year ARMs and 30-year fixed loans have had an average spread of 1.00-1.50%.

 

[usctrojancpa]

What is the downpayment requirement for this?  I saw someone mentioned 25% to get out of impounding pmts but nothing about downpayment.

My plan would be to use the 5/5 ARM but continue paying the 30 year or 15 year pmt.  If I did my math right, if you pay the 30 month payment on the 5 year arm, your actual required payment will still be cheaper than a 30 year fixed after the 5 year reset even if it jumps 2%.  Does this sound right?

Also, just curious what is the spread on this usually in a more normal interest rate environment?  Like say a 30 year fixed is in 6% area..will this say in the 3's? or will this come closer to 4-5%?

I just talked to them today. 20% down required if loan is greater than $417,000. If less than 10% . The best part is that it is locked for 90 days. You can lock for 180 days if you pay .875 points up front.

Did you get to ask if they hit you with PMI if you do only 10% for a loan under $417k?  I like how their pricing is the same whether you do a 417k loan or a loan higher than that.  I think you get hit with a slightly higher rate if you are looking at a jumbo conventional versus a regular conventions with on fixed loans and ARM loans.

 

[edhne]

dcu.org also has a 5/5 now. their jumbo goes all the up to 1M.

Their dti is 45% if you have above 740 credit score they said. On conforming, they can to 95 LTV and jumbo up to 90%.
https://www.dcu.org/index.html

 

[25inirvine]

What is the downpayment requirement for this?  I saw someone mentioned 25% to get out of impounding pmts but nothing about downpayment.

My plan would be to use the 5/5 ARM but continue paying the 30 year or 15 year pmt.  If I did my math right, if you pay the 30 month payment on the 5 year arm, your actual required payment will still be cheaper than a 30 year fixed after the 5 year reset even if it jumps 2%.  Does this sound right?

Also, just curious what is the spread on this usually in a more normal interest rate environment?  Like say a 30 year fixed is in 6% area..will this say in the 3's? or will this come closer to 4-5%?

You have to put 20% down to get the loan and 25% down to waive impounds.  If you pay additional each month it will bring down the loan balance which will reduce the impact of an future interest rate increases.  You'd have to do the math to see how to works out. 

In a normal economy with a steap yield curve I've seen the the difference between the 5-year bond and a 10-year bond be more than 2%.  I'd have to go back and look at the charts but I think 5-year ARMs and 30-year fixed loans have had an average spread of 1.00-1.50%.

So is it a 10% or 20% down?  Seems like Trojan and rickr differ there.  I would for sure be under 417k.  Just would rather put 10%  also am curious about that PMI info.  That would probably be my motivation to put 20% down

 

[usctrojancpa]

dcu.org also has a 5/5 now. their jumbo goes all the up to 1M.

Their dti is 45% if you have above 740 credit score they said. On conforming, they can to 95 LTV and jumbo up to 90%.
https://www.dcu.org/index.html

I think I read that their margin on the index is higher than PenFed's when it comes time for a re-adjustment.  Maybe someone can confirm.

 

[usctrojancpa]

What is the downpayment requirement for this?  I saw someone mentioned 25% to get out of impounding pmts but nothing about downpayment.

My plan would be to use the 5/5 ARM but continue paying the 30 year or 15 year pmt.  If I did my math right, if you pay the 30 month payment on the 5 year arm, your actual required payment will still be cheaper than a 30 year fixed after the 5 year reset even if it jumps 2%.  Does this sound right?

Also, just curious what is the spread on this usually in a more normal interest rate environment?  Like say a 30 year fixed is in 6% area..will this say in the 3's? or will this come closer to 4-5%?

You have to put 20% down to get the loan and 25% down to waive impounds.  If you pay additional each month it will bring down the loan balance which will reduce the impact of an future interest rate increases.  You'd have to do the math to see how to works out. 

In a normal economy with a steap yield curve I've seen the the difference between the 5-year bond and a 10-year bond be more than 2%.  I'd have to go back and look at the charts but I think 5-year ARMs and 30-year fixed loans have had an average spread of 1.00-1.50%.

So is it a 10% or 20% down?  Seems like Trojan and rickr differ there.  I would for sure be under 417k.  Just would rather put 10%  also am curious about that PMI info.  That would probably be my motivation to put 20% down

Their website says 20% down but since Rickr called them I'd believe him.  So if you are $417k or under you can do 10% (not sure if that does or does not include PMI) but you have to do 20% if you are over $417k.