But only for 30 years!
✅ Why booking a lot of 30-year fixed rate mortgage loans is a management mistake of the first order for all financial institutions... a mistake that the SECU ELT has already made.
😎 Question: If you had $100,000 in savings and SECU offered you a guaranteed fixed rate CD for 30 years at 3.25%, would you make that investment? Of course you wouldn't with the current economic uncertainty (and with the current 1 year rate at 4%!). No, just wouldn't be smart, would it?
Well, you have decided as a member to make that investment! ... or at least the lending gurus at SECU have made that mistake on your behalf! Remember this [link]:
✅ "Who "funds" our loans at the Credit Union? In 2021 and 2022 SECU made over $6 billion in 30-year fixed rate mortgages at around 3.25% and "funded" those loans with other SECU members' hard earned savings dollars!"[That means you!]
😎 Question:Why would anyone do that with your savings?
1) Because "they" have figured out how to pay SECU savers 4% on CDs, invest your funds at 3.25% and not lose money.
2) Because the overall average low rate being paid for all SECU deposits and savings is only @2.50%. So, earning 3.25% while paying 2.50% is a really great deal as long as you don't include our operating costs of 2.30%.
3) Although 30-year fixed rate mortgages are now over 6%, members will become very eager to refinance their existing 3.25% mortgages.
4) Rates will move lower and stay lower for the next 30 years. The Fed is targeting rates @2% so plus our operating expenses of 2.30%... well, don't exaggerate the loss.
5) Maybe SECU members won't notice for 30 years ... even with AI.
No one else is commenting on this topic, so just a few thoughts. For the continued financial health of our credit union, we hope the members that got those low-rate fixed mortgages don't keep their homes for the full 30 years, right? Unfortunately for me, I could not take advantage of those lower rates. I had just obtained a 30-year, 5-yr ARM in 2018 and could not justify the cost of refinancing. My 5-yr ARM has the potential increase of 2% every 5 years for a max of 6%. The potential increase of 6% in just 15 years is scary, so I have been monitoring the US Treasury Securities 5-year constant maturity rate movement for the past 7 years. It bottomed out during the onset of Covid. For over the past 3 years, it has been over the 3% to under 5% range – noting that the rate chart reflects crazy ups and downs compared to pre-Covid rates. Ironically, its peak came during my 5-yr anniversary adjustment period. Thankfully, the 2% cap limited my rate increase. Bottom line, I am paying 5.875% on my mortgage now, and surely others are paying higher than 3.25% as well. I would rather have a fixed rate than hoping the rate gods give me a low rate on my exact adjustment date, but I will do the best I can with the cards I am dealt. I hope the credit union can survive. -c
ReplyDeleteWhy not hold the 5/5 ARM for 10 years (with one rate reset), then refinance into a 15 or 20 year fixed?
ReplyDelete9:56 I agree and I have been considering that option for sure!
ReplyDeleteIf you were at 3.875% you could have refi’f into a 30 year fixed at 3.25 in ‘21 and your payback period on the refi costs would have been 6-9 months.. 4 years later you’re still in the loan/house
ReplyDelete12:41pm See next post. A differential in rate where the rate on the ARM is only @ .5% less than the 30-year fixed rate is unfair to the borrower.
DeleteCourse in this case where the mispricing was extreme... with the ARM rate 3.875% (actually higher!) than the fixed rate at 3.25% ... a refi would have made sense as the commenter points out.
Problem now is, for the foreseeable future, SECU can't book anymore 30-year fixed rate mortgages... and members will find the SECU ARM unattractive if they Google for rates elsewhere.
All the work SECU staff did to explain, price, and position the ARM as a more affordable alternative is heading down the tubes...
Untrue it is unfair to the borrower. If lending rates are expected to decline in the future, which you have already pointed out has been the case for the last 40 years, then the lender would be taking on undue interest rate risk by pricing their ARM products too low.
Delete5:35pm Started not to post this beause it might embarrass you, but maybe not.
DeleteFirst, that rate graph was from the Federal Reserve and just showed the obvious... rates have been trending downward for the last 40 years.
Second, the post questioned LA/s insight as to the future direction of rates, while confessing that I had never had that ability, still don't.
Third, the embarrassing part is "... If lending rates are expected to decline in the future,...then the lender would be taking on undue interest rate risk by pricing their ARM products too low.."
Brother hope that was a typo because it makes no sense - logically nor financially.