While most purchasers of condos and co-ops prefer conventional fixed-rate financing, there is a substantial market for variable rate co-op and condo mortgages. Generally referred to as ARMs (adjustable rate mortgages), these instruments can carry a term of anywhere from 10 to 30 years with rate adjustments occurring as frequently as every year or more likely every five years or seven years.
ARMs tend to increase in popularity when mortgage rates are low and are expected to remain that way or fall further, and/or when purchase prices rise and the more competitive initial rates offered by these products facilitate purchase, particularly for buyers entering the market for the first time.
Know the Borrower, Know the Product
“As long as the borrower is comfortable with an ARM product, I would always recommend it,” says Robbie Gendels, vice president and senior loan officer at the National Cooperative Bank, a national lender for all types of co-op and condominium financing, based in Arlington, Virginia. “As long as you educate a borrower as to how the program works, what their options are, what the rate is, etc., they can make an educated decision. I would not recommend it, though, if the borrower’s comfort level with the product was not there.”
Gendels adds that sometimes a borrower may not have a choice. “For instance, the co-op or condo may not be FNMA [Fannie Mae] approved,” in which case portfolio lending is necessary. “We do portfolio lending which is adjustable rate,” says Gendels. “That’s one reason a borrower would choose an ARM product.”
Why Go For an ARM?
Quicken Loans, a major online provider of home mortgages, suggests reasons to consider an ARM as opposed to a conventional fixed-rate loan, including: