A 5-year wait for a new mortgage rate

jumbo rateBy AnnaMaria Andriotis | The Wall Street Journal

Wealthy home buyers are encountering a new pitch: an adjustable-rate mortgage with a twist.

Known as the jumbo 5/5 ARM, this loan has a fixed interest rate for the first five years before it resets to a new rate that the borrower ends up with for another five years. The process in most cases repeats throughout the life of the loan.

Lenders say this mortgage provides borrowers with more certainty because the required monthly payments don’t change as often as they do on other ARMs. Borrowers, therefore, are less prone to interest-rate swings. Many lenders are also touting 5/5 ARMs as a hedge against rising mortgage rates, telling borrowers that at the point of reset they stand to receive a rate that may be lower than those they’ll incur if it adjusts annually.

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