6/6 ARM Program
In a recession, cash is king. Having the ability to deploy cash into discounted assets is how wealth is built in a recession. To assist our clients with this, we have rolled out a new program - the 6/6 ARM.
As a disclaimer, this product is not for first-time home buyers or any buyer who prefers to be conservative with their home purchase. Most buyers will not fit in this box, but for those who are comfortable with risk, it can be an incredible tool.
Some scenarios that this program can be good for - if a client does not fall into a scenario similar to this, it may not be the best option for them:
- A client who will be selling a company, home, music rights, or something similar that will deliver them a large sum of cash in the near future (6-12 months).
- A client who will be receiving inheritance, trust income, or stock payout in the near future (6-12 months).
- A client who wants to deploy cash in other investments that will return funds in the near future.
The program is an ARM loan that has a low fixed rate for the first six months. Every six months after that, the loan will adjust. The rate adjustment is based on the 30-day average SOFR Index + 2.75%.
Today 7/19/22, the initial rate on this program is 2.75%. To put that into context, let's say you were looking at purchasing a home for 1.1 million with 25% down ( loan amount 825k):
| Term | Rate | P&I Payment | Monthly Savings |
|---|---|---|---|
| 30 Yr Fixed | 5.875% | $4,880.19 | - |
| 6/6 ARM Initial Rate | 2.75% | $3,367.99 | $1,512.20 |
| 1st Adjustment (payments 7-12) | 4.75% | $4,303.59 | $576.60 |
| 2nd Adjustment (payments 13-18) | 5.75% | $4,814.48 | $65.71 |
In a worst case scenario (maxing out every adjustment period), your total savings for the first 18 months of the loan would be - $12,927.06
*Note - if the rate were to adjust today, the rate would be 4.25% according to the SOFR index (below the max cap assumed above)
For clients that fit in this box, this is a great way to reduce the monthly expenses as they wait on cash or expected future payments. Additionally, clients can always then refinance the home into a 30-yr fixed rate option. This loan gives the borrower time to let the dust settle as the FED attempts to curb inflation. If the client has the cash in their pocket, the worst case scenario is for them to refinance back to a 30 yr fixed rate in the future.
If you or your clients want to explore this option, you can always reach out to me at michael@nuwavelending.com and we can look at this scenario together.