“Most clients we are seeing go into their fully adjustable rate also have rate caps to protect them,” Younathan told Mortgage Professional America. “So, if a client had a 2.875% five-year ARM come adjustable, our rate cap is a 2/2/6, meaning 2% first year, 2% every year thereafter, and a lifetime cap of 6%, and that is in addition to their start rate.
“This client could see a 4.875% rate in year one, a 6.875% rate in year two, and a lifetime cap of 8.875% in year three. All this to say that the initial rate adjustment will likely still be an attractive rate.”
Because of the rate caps, and with rates still elevated, homeowners with rate caps may still find the difference between their first adjusted rate and the current rate too high to make a move.
How to work with existing ARM clients
For mortgage brokers working with customers holding on to these ARM rates, Younathan said the broker has a couple of options to help them out.
“For brokers and loan officers working with current ARM customers who are rate-capped and may be less likely to jump into a new mortgage, a broker should consider the client’s needs,” Younathan said. “If the client needs cash, conduct a full rate analysis, blending the first mortgage rate with a potential second mortgage rate to identify opportunities for a first trust deed refinance with cash out.”