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is it possible to buy down the margin on a 5/1 ARM?

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July 02 2010 - San Francisco
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Answers (5)

Will, I'd check with a local credit union or community bank - sometimes they'll offer a portfolio loan that isn't available to the rest of us and they love those 5/1 and 10/1 ARMs.

Clay mentioned the need for the buy down. It typically doesn't make sense to pay for any sort of buy down on short term fixed loans and I'm wondering if we're missing a piece of the story that might indicate a different loan would be a better choice.
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July 02 2010
In the "old days" with some lenders the margin would go down with the borrowers choice of a one to five year prepayment penalty. To my knowledge those are no longer available, except on Commercial Financing. ..... Happy funding, Rudi
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July 02 2010

I agree 2.25% is the norm for Libor based loans and there are still a couple of lenders with 1.75% margins on Treasury based loans for FHA/VA. If you bought the margin down .500 it may cost a point and would not have any affect until the 6th year/forward so you may be better off taking a 7/1 and using that point to buy down the start rate and get the benefit from payment 1. If you need a longer window than 7 years I would just get a 30 Yr Fixed since the 5/1 adjusted rate in 6 years could be uglier than you can imagine.  

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July 02 2010
I have never seen an option to buy down the margin.  Depending on the particular scenario, there are increases to margin for additional risk factors.

I believe the minimum margin you will find on an ARM based on LIBOR is 2.25%.  ARM products based on MTA will have slightly higher margins. 

Hope that helps!

Ray
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July 02 2010
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Its possible in theory. Ive seen lenders offer different pricing to me for cap amounts.

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July 02 2010
 
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