San Antonio has always been known as a big city with a small-town, friendly atmosphere. That trend continues with our luxury home market as the Alamo City grew at a faster pace than the rest of the Texas major markets and yet still maintained its desirable affordability.
San Antonio’s luxury home market was up 11.5 percent in 2016 over 2015 levels, per the Texas Luxury Home Sales Report. This was the highest level in all of the Texas major markets with Austin’s 3.1 percent, Houston’s 7.9 percent and Dallas’ 1.9 percent. San Antonio also had the distinction of being a better value per square foot, as well, at $249, versus Austin’s $345, Houston’s $317, and Dallas’ $296.
With a higher sales price also comes a higher loan amount (also called jumbo loans when they exceed $417,000). Given the San Antonio’s median luxury home sales price of $1.3 million, a typical loan amount would be based on a 20- to 25-percent down payment for a loan amount of $1,040,000 to $975,000. Like all buyers, luxury home buyers are considerably interested in the funds to close, interest rate and the monthly payment.
Although a 30-year fixed rate jumbo loan provides the security of a long-term fixed rate, most lenders unfortunately do not provide the necessary cost benefits analysis with an adjustable rate mortgage or ARM. A long-term fixed rate mortgage for a homeowner who is more than likely going to pay off the mortgage by selling and moving on to another home would benefit the lender more than it would benefit the homeowner.
An ARM, when responsibly implemented, can save a tremendous amount of money for a luxury home owner during the initial fixed rate period. ARMs can adjust to a higher rate, thus increasing the homeowners monthly payment, so it’s always important to understand the risks. Hybrid ARMs are the most popular and have an initial fixed rate period, followed by an adjustable period which typically has one-year increments for the remaining 30 year term. The initial fixed rate periods can be 10, seven and five years (other combinations are available depending on the lender).
Here is a quick review of the differences between a current 30-year fixed rate of 3.500 percent vs. a 10-1 ARM at 2.75 percent and based on a purchase price of $1.3 million with a $1,040,000 mortgage over the first 10 years.
Not only is the cost of the interest more than $70,000 less for the ARM over the fixed rate, but the overall balance is more than $22,000 lower as well. It is true that in a worst case situation, the benefits of the initial lower ARM rate can be offset if interest rates rise after the initial fixed rate period. In the case of a 10-1 ARM, that time period can typically be three to four years after the rate adjusts. Keep in mind that ARMS do offer maximum initial rate adjustments, annual adjustments and lifetime caps. Your mortgage loan officer can provide a detailed breakdown of each of the ARM parameters. Despite the risk, the benefits of the ARM, particularly on luxury home financing, can be significant.
Mark Drew (NMLS# 595322) is a Vice President and Production Manager for Amegy Mortgage in San Antonio. He has been recognized by the San Antonio Business Journal as a Top Producing Loan Officer nearly every year since 2003. Drew is a past president of the San Antonio Mortgage Bankers Association. He is one of the few mortgage officers per the San Antonio Business Journal to fund more than 400 transactions in a single year. Drew and his team at Amegy Mortgage enjoy serving their clients with the purchase, construction and refinance of their homes. For more information, please contact Drew at 10001 Reunion Place Blvd., San Antonio, Texas 78216, at firstname.lastname@example.org or by phone at 210-343-4441.