By Annamarie Andriotis | The Wall Street Journal
Wealthy homeowners are discovering the upside to notorious adjustable-rate mortgages: big savings.
Most ARMs are originated with a fixed interest rate that lasts a few years before it becomes variable, then typically changing once every 12 months. But now, more jumbo borrowers are sticking with their adjustable rates after the initial fixed-rate period ends rather than refinancing into a new loan. The savings over time can be significant, since variable rates have been lower than fixed rates a homeowner who refinanced would get. And since they’re no longer refinancing, they don’t have to pay closing costs.
During the housing bubble, borrowers who didn’t shift out of ARMs before the rates changed often found themselves in hot water. Many of them ended up in foreclosure after rate increases made it harder for them to keep up with payments. Years of historically low rates, however, have made jumbo borrowers less fearful.
