Pentagon Federal Credit Union | Mortgage Q&A: ARM Ad Doesn’t Tell Whole Story
October 9, 2011 – 12:57 pm
Q. We have a 30-year fixed-rate mortgage in the amount of $187,000 with a rate of 5.375 percent. The Pentagon Federal Credit Union is advertising a 5/1 ARM at 3.625 percent for the first five years and then 2.875 percent for the remaining 25 years.
My wife and I are both 71 years old and we are trying to determine whether this loan would be a good move. I have a good retirement income and I am working full time and plan to do so for at least another three years. Both of us are blessed with excellent health. Thoughts?
A. You are, indeed, a refinance candidate because interest rates are so low, and I’ll get to that in a minute. I want to review your understanding of the deal PenFed supposedly is offering.
As a mortgage professional, my eyebrow rose when I read about PenFed’s offer in your email. It just didn’t sound right. If the terms that you described in your email -a 5/1 ARM at 3.625 percent, with a drop to 2.875 percent for the remaining 25 years -are correct, I absolutely would have told you to sign up.
Unfortunately, your understanding of the particular program is incorrect. After poking around a bit, I certainly can understand why you would be confused. In fact, it’s shameful.
I went to PenFed’s “Mortgage Rate Special” website and frankly was shocked at the misleading information it contained. It begins with the following statement in big letters: “If you can find a better deal, TAKE IT!”
Below that, there’s a box that advertises a “5/5 ARM -Adjusts only once every 5 years.” Below that is a chart that specifies “Months” and “Rate.” Under “Months,” it boasts “first 60″ and under “Rate” it specifies “3.625%.” Underneath that it says “next 300″ and “2.875%.” To me, it absolutely appears that PenFed is offering rate of 3.625 percent with one adjustment to 2.875 percent at the end of the fifth year.
The fine print under the chart confirms
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