In the aftermath of the mortgage market collapse that occurred in 2008, many concepts took on bad reputations in the media and with the public. One such concept was the Adjustable Rate Mortgage (ARM), which came under criticism because people found their rates fluctuating so widely that they had trouble adjusting to unexpected higher payments.

But new hybrid ARM products can be a great option for certain buyers.

The 5/5 ARM from Affinity Federal Credit Union is a great example of an ARM that adds stability for homebuyers. The 5/5 ARM locks in the original mortgage rate for five years, then makes adjustments only once every five years thereafter. That allows consumers to anticipate and budget for mortgage rate adjustments.

But what if mortgage rates rise dramatically? The 5/5 ARM protects against that as well, by limiting rate changes to no more than 2-3 percent at each adjustment period and 5-6 percent over the life of the loan, depending on the term. So even if market rates have changed 6-7 percent during the five-year period in question, the individual mortgagee’s rate will only change 2-3 percent.

The 5/5 ARM is designed to give home buyers the best advantages of the Adjustable Rate Mortgage while providing more rate stability. 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. 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. Consumers did have problems with ARMs, but it didn’t make sense to lock everyone into fixed-rate mortgages when ARMs could benefit a lot of home buyers if they were merely structured a little differently to protect against high risks and extremes.

To arrange an interview about the steps we are taking to meet the needs of our members while protecting them against risks, contact Ann Willets at Utopia Communications – using the contact information above.

About Affinity Federal Credit Union:

Affinity Federal Credit Union, New Jersey’s largest credit union, is a member-owned, not-for-profit, full-service financial institution with 15 branches throughout New Jersey with more than 135,000 members from more than 2,000 businesses and organizations and total assets in excess of $2 billion.  Headquartered in Basking Ridge, Affinity Federal Credit Union has been offering superior financial services with a member-oriented focus since 1935. For more information, visit www.affinityfcu.org.