By Ray Birch
TUCSON, Ariz.–One credit union that has introduced a unique, adjustable-rate mortgage says to effectively launch the product the credit union had to first deal with the “misconceptions” of the adjustable-rate offer brought on by the last financial crisis.
That’s why Tucson Federal Credit Union has been using podcasts to talk in-depth about its new Fixed4Five ARM that has been getting a lot of attention from members.
“The adjustable-rate mortgage has often been mischaracterized, especially since the downturn in the market in 2008,” said TFCU CEO Matthew Gaspari. “The interest rate environment was making it difficult for some of our members to get into the market, into a refinance or purchase. We wanted to get creative and create a product that was a hybrid of both fixed and variable.”
As CUToday.info reported, Tucson Federal Credit Union has launched the Fixed4Five mortgage, which it said combines the stability of a fixed-rate mortgage with the flexibility of an ARM.
The new mortgage features:
- An initial five-year fixed-rate period, offering stability and predictability for new homeowners
- Subsequent rate adjustments every five years not to exceed 2%
- A lifetime cap that limits rate increases to no more than five percentage points over the loan's lifetime, providing long-term peace of mind
- Availability for 30-year mortgage terms, providing lower monthly payments
Better Rate To Start
“It gives a better rate to get in, but it also provides security against rates adjusting too much,” Gaspari said. “And not just the first time, not just the first adjustment, but through the life of the loan.”
Gaspari emphasized that adjusting the rate every five years is much more manageable for many people’s budgets.
“It doesn't switch every year, or every other year,” he reminded. “We are always looking for ways to serve the members—for ways to be creative and put a product in place that will assist the membership.”
Gaspari said there are more adjustable rates appearing in his credit union’s market, but nothing like the product TFCU has designed.
“We are seeing more aggressive repricing after the initial rate,” Gaspari said. “But our product has allowed us to compete on that stage.”
Gaspari said Fixed4Five offers a way for consumers to once again become comfortable with an ARM, and it’s safer for the members.
TFCU does a regular podcast, and Fixed4Five has often been a topic discussed.
“We like getting information out to our members via a podcast,” COO Krystal Adams explained. “And, yes, the concerns about an ARM were absolutely top of mind when we designed Fixed4Five. “There's a way to do the adjustable rate that is beneficial for both parties, the member and the credit union.”
During the CU’s podcasts, the organization addressed the “misconceptions” of the adjustable-rate mortgage, brought on by the financial crisis of 2008—that it is a product that gets borrowers in trouble and was a key reason for the financial problems that swept across the nation during the Great Recession.
“During these podcasts, I'm the interviewer and then Matthew is the interviewee,” Adams said. “We talk about where adjustable rates were originally, why they originally done, the misconception of them during the 2008 crisis, and why they make sense now. We also give those listening tips as far as how to choose whether you go a conventional or adjustable.”
Fixed4Five is priced 100 basis points below the CU’s 30-year fixed-rate mortgage, which in September was 6.30% for the best paper.
Member Reaction
“We introduced the product several months ago and member reaction has been really solid,” Gaspari said. "And we're getting a lot of attention. We've had a lot of financial organizations reach out to us, as well, that want to talk about it.”
TFCU will evaluate the product this year.
“We’ll work forward from there,” Gaspari said. “We will see what the interest rate environment is and determine whether or not this product continues to make sense. But as long as we keep it priced properly, and because of the stable nature of it, it can work in a lot of interest-rate environments—especially for those who are first-time homebuyers and might not stay in their home for very long.”