LAS VEGAS — Housing finance executives whose credit unions book a significant number of adjustable rate mortgages said the loans offer their members a lower cost mortgage deal than 30-year fixed rate obligations.
That was the one of the insights shared during a Tuesday breakout session at the American Credit Union Mortgage Association's annual conference at the Encore in Las Vegas, which kicked off Sept. 14 and wraps up Wednesday.
Tim Mislansky, chief lending officer at the $3.8 billion Wright-Patt Credit Union Inc. in Beavercreek, Ohio, and president of myCUmortgage, the credit union's wholly owned mortgage CUSO, joined Craig Olson, SVP of first mortgage operations at the $18 billion Pentagon Federal Credit Union in Alexandria, Va., and housing finance consultant Tracy Ashfield on a panel to discuss ARMs at credit unions.
Ashfield, CEO of Ashfield and Associates in Madison, Wis., moderated the panel that discussed the ways adjustable rate products can benefit members who are not planning to remain in a property they are purchasing for more than 10 years and why the loans are not any riskier than longer-term products.
“We particularly believe the 5/5 product costs significantly less over a 10-year period than does a fixed rate product,” Mislansky said.
A 5/5 adjustable rate mortgage typically starts at a significantly lower rate and then resets after five years to a higher rate, but not higher than 5%.
The costs of the blended rates across a 10-year period, five at the lower rate and five at the higher, still works out, costing the member less money than if they had the fixed rate mortgage for the same period, Mislansky and Olson said.
The ARM product is particularly good for families purchasing starter homes who expect to need to move to larger homes in five to seven years, Mislansky noted.
The task is to get the member to understand the benefits of an ARM and not to react in a knee-jerk or reflexively negative way, he added.
“It's not a matter of getting people to accept a mortgage they aren't comfortable with,” Ashfield said.
Instead, the task is to help members understand that even if the ARM resets to the full cap, they are still better off financially than they would be with a 30-year fixed mortgage at a higher rate.
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