The $2.3 billion Affinity Federal Credit Union has launched a housing finance product which, it said, should help its members regain confidence in the adjustable rate mortgage.
The 133,600-member Basking Ridge, N.J., institution observed that ARMs drew criticism in the wake of the housing collapse because many consumers had been left with adjustable rate loans they often didn't understand, but the credit union also pointed out that ARMs can be useful tools for some borrowers.
In an attempt to reintroduce ARMs, the credit union has announced the 5/5 ARM, an adjustable rate loan where the original rate does not adjust for five years and then adjusts only every five years thereafter.
Further, the amount of each five-year adjustment is capped at between two and three percentage points, the credit union said.
“The 5/5 ARM is designed to give home buyers the best advantages of the adjustable rate mortgage while providing more rate stability,” the credit union said in its announcement.
“It allows home-buyers to take advantage of low rates at the outset while planning for the possibility of higher rates at a predictable point in time, knowing that any possible increase will go only so far,” the announcement said.
“And for those who buy during a time of higher rates, it protects them from being locked into those high rates throughout the duration of their mortgage. The 5/5 ARM is a good example of the financial industry finding better ways to execute a worthwhile concept, rather than simply tossing it out entirely because there were problems associated with it,” Affinity FCU said.
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