Consider All Options for Home Financing

Thursday, September 5, 2019

San Antonio has always been known as a big city with a small-town, friendly atmosphere.

San Antonio’s luxury home market continues to grow at a strong pace, with existing homeowners moving up to larger homes and relocating families who are new to the area joining the community. San Antonio offers a thriving variety of luxury homes ranging from historical to new, custom-built modern homes to high-rise condominiums overlooking the Alamo.

Getting the Right Loan

With a higher sales price also comes a higher loan amount (also called jumbo loans when they exceed $484,350). Based on a purchase price of $1.3 million, a typical loan amount would be based on a 20% to 25% 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 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 (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 homeowner during the initial fixed-rate period. ARMs can adjust to a higher rate, thus increasing the homeowner’s monthly payment, so it is always important to understand the risks. Hybrid ARMs, the most popular option, have an initial fixed rate period followed by an adjustable period of interest rate changes — typically one-year increments — for the remainder of the 30-year term. The initial fixed rate periods can be 10, seven and five years, with other combinations available depending on the lender.

Here is a quick review of the differences in the first 10 years between a current 30-year fixed rate of 4.000% versus a 10–1 ARM at 3.250%, based on a purchase price of $1.3 million with a $1,040,000 mortgage.

Mark Drew

Not only is the cost of the interest over $70,000 less for the ARM over the fixed rate, but the overall balance is over $21,000 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 Bank 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 and served on the finance committee for St. PJ’s Children’s Home. He is one of the few mortgage officers per the San Antonio Business Journal to fund over 400 transactions in a single year. Drew and his team at Amegy Bank 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; 210-343-4441; or