10 year ARM cap structure

Amazon
gotRekt

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gotRekt
Mar 13 20 Comments

Is it common for 10year ARM to have lifetime cap of 8%? I was just quoted this cap structure last Friday and wondering how common it is in a rising market.

How much did you get?

#mortgage #housing #arm

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  • Apple
    aWVt68

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    aWVt68
    Yup normal. Hopefully rates will be lower in 10 years once inflation is under control. Assuming your current rate you are getting is 3% for 10 arm. If your rate is 2.5% then max should be 7.5%
    Mar 13 7
    • Amazon
      TYLOPSIS

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      TYLOPSIS
      Flip side these rates are still very low. And a 30 year fixed could make more sense.

      Don’t forget theirs generally costs to refinance
      Mar 13
    • Amazon
      gotRekt

      Go to company page Amazon

      gotRekt
      OP
      The way I see it, if we go with 30year fixed, you are kinda forecasting that the rates will be worse in the future and can never go below this at any point, even in the short term.

      I don't particularly like to forecast things and since there's a good chance I may move out to a bigger home or a different location in 10yrs, ARM is ideal to me.
      Mar 13
  • To clarify, is that the lifetime cap interest rate or the max % increase over start rate? Most arms have 2/5 caps or 5/2/5. Which is 2% max up or down, and 5% over the life of the loan. Not uncommon for the first cap to be 5% higher at first adjustment, then 2% a year and same 5% over the lifetime. A 2/6 used to be more popular. Fha has a 1/5.
    Mar 13 5
    • Assuming excellent credit and income
      Mar 13
    • Amazon
      gotRekt

      Go to company page Amazon

      gotRekt
      OP
      I'm getting 3% for my ARM. I'm pretty sure no lender could provide below that for my score. I'm saying this after shopping around banks and credit unions.
      Besides, that's not what I was asking for. You talked about 5/2/5 structure, is merill giving that recently? Did they give that rate to you this month or are you just saying based on your past experience?
      Mar 13
  • Where’s did you get your rate?
    Mar 14 2
    • @Amazon that was based on earlier conversation with broker at Merrill, need $500k held there, but they will even go to 100% of purchase price on pledged asset program.
      Mar 14
    • VMware
      Idli vada

      Go to company page VMware

      Idli vada
      @amortize. Question about this, If one were to default their loan in future due to economical crisis etc, Merrill could potentially freeze your assets n not let you access your 500k ?
      Apr 2
  • Oscar
    epKb37

    Go to company page Oscar

    epKb37
    caps are part of the structure for an ARM. the numbers are what vary with the market. typically there are three caps: the cap for how much the rate can shift when it first becomes adjustable (i.e. after ten years), the cap for adjustments after the first change (i.e. how often can the rate change and how big can the shift be), and then the ultimate cap for how high the interest rate can ever get.

    rising market is relative and who knows what will happen in ten years when it actually becomes relevant to your loan.
    Mar 13 2
    • Amazon
      gotRekt

      Go to company page Amazon

      gotRekt
      OP
      I'm not sure if you read my post or just the title. I'm asking if 8% is higher or the norm these days. I'm not asking how the cap structure works.
      Mar 13
    • Oscar
      epKb37

      Go to company page Oscar

      epKb37
      ah, I see the poll and clarity added now. was ambiguous to me originally. ultimately with an arm though your goal isn’t to keep it after the fixed period. that rate is somewhat of a moot point because ideally it’s used for a shorter term plan that’s better than the current fixed market. either you grow out of your home and sell it before the fixed rate is over or you refinance for a fixed rate if the market improves. if you stick around that long the bank has won (they’ve picked the rates such that it’s a better deal for them based on their models)
      Mar 13