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Adjustable-rate mortgages, also known as ARMs, come with pros and cons — like most major decisions in life. While the rate on the loan adjusts with market conditions, meaning it could fluctuate over time, ARMs are a lending option that could offer opportunity for the right buyer at the right time.

The Lending Landscape

Mortgages are either considered conforming or non-conforming, based on their type. The most common are conforming, which includes fixed-rate mortgages and adjustable-rate mortgages.

A fixed-rate mortgage offers borrowers a static interest rate on the loan, which means it will not change over the life of the loan. While those rates may be a bit higher than those offered with an ARM, since a lender has to hedge against market changes, a static rate provides a homeowner with financial predictability over the long term.

An adjustable-rate mortgage may offer a lower initial interest rate than a fixed-rate loan, but terms of the loan allow the lender to increase or decrease the rate over time based upon the terms of the loan.

Both types of loans term at 30 years and both scrutinize a borrower’s credit score, but borrowers with a higher debt-to-income ratio may have an easier time qualifying for an ARM than a fixed-rate mortgage.

Finding A Good Fit

There are a number of variables to consider when deciding between an ARM or a fixed-rate mortgage, most notable among those variables being the estimated length of time for which the mortgage is needed.

While the lifetime of the loan is 30 years, a buyer might know that they will sell the home within a few years. Why is this important? Because ARMs include an introductory, fixed-rate period when the interest rate won’t change. While the length of the fixed-rate period may vary from loan to loan, it is common to see introductory periods of 5 to 10 years. You may often see ARMs advertised as 5/1 or 7/1 ARMs.  The first number represents the number of years the rate will stay the same.  The second number represents how often the rate can adjust.  So a 7/1 ARM will have the same rate for 7 years and can adjust every 1 year thereafter.

Once that introductory period is over, the adjustable-rate period begins. So, if a buyer expects to not  keep the home past the loan’s designated introductory period, or if they expect rates to come down within the introductory period, it could make strategic sense to capitalize on the oftentimes lower rates offered by ARMs, as compared to 30-year fixed-rate loans.  Oftentimes such ARMs are amortized over a 30 year period, so if a buyer wanted to purchase a home with an ARM and ride it out for the duration of the full term of the loan, they could.  Such a move would be a roll of the dice, but as ARM rates can also go down, there could be benefit to the borrower by holding on to the note (although most who get ARMs do not plan on doing so).

ARMs also make sense in a high-interest rate market. If rates are above where a buyer is comfortable for the long haul, an ARM could provide a more affordable gateway to homeownership — and one that allows a buyer to pay down principal faster. ARMs don’t only adjust up. When interest rates stabilize and return to a more reasonable range, ARMs adjust down.

For contrast, fixed-rate mortgages are better for those buying their “forever” home, those who were able to lock in a low interest rate during a favorable period or those who live on a tight budget and need financial predictability. Regardless of the choice a buyer makes, it’s important to remember there are always options out there and that the market finds solutions to nearly every economic situation that arises.

If you’re considering a move, the team with Jose Vergara is ready to help. We keep an eye on market trends so you don’t have to. Moving is an exciting time of transition, and we’re ready to help you with it. Contact us today so we can learn more about how we can support your needs.

After 47 years of operation, Metrocenter Mall shut its doors for the final time on June 30, 2020, amid a pandemic and after efforts to revitalize the mall fell short. But, like the namesake of the city in which it resides, new life is coming to this Phoenix landmark.

Concord Wilshire Capital (CWC) and TLG Investment Partners (TLGIP) announced that they have partnered with Hines to acquire Metrocenter Mall and plan to invest approximately $750 million to redevelop the property into a residential and mixed-use community.

“It’s a remarkable opportunity to reimagine what was an iconic regional mall at a Superior location at the time it was built but has become even more attractive as a development site with the light rail set to terminate there in 2024,” says Steve Betts, senior advisor to CWC and Hines. “With growth continuing to move to the northwest and businesses such as the Taiwanese Semiconductor Manufacturing Company bringing 8,000 jobs just 15 minutes north on the I-17, Metrocenter is now in the center of our metro.”

The Deal

The metamorphosis of a declining mall property into a revitalized community has taken a long, winding path. In 2016, the previous owner of the mall, Carlyle Development Group, did the crucial work to make this community possible — it led a rezoning effort for Metrocenter.

Carlyle obtained approval from the Phoenix City Council for a planned unit development (PUD) designation, which allows the applicant “to propose the uses, development standards and design guidelines for a site, and by doing so, enter into a collaborative review process,” according to the City of Phoenix’s website.

In a press release announcing Metrocenter’s redevelopment, Abdi Mahamedi, president and CEO of Carlyle Development Group, says, “We worked very hard to obtain approval for a flexible PUD that allows a high density residential and mix-use development in the Metro Phoenix market.”

Still, the idea that Metrocenter could be transformed into a residential village met resistance from skeptics. Christine Mackay, community and economic development director for the City of Phoenix, told attendees of Valley Partnership’s panel discussion on Jan. 28, 2022, that she pitched the idea of a Metrocenter redevelopment to 25 different developers before a deal was inked.

“There were about a dozen developers that were adamant that Metrocenter could never be redeveloped into an urban village, that it had to be industrial or it was going to fall even further into disrepair,” Mackay recalls.

Betts adds that when word got out that CWC acquired Metrocenter, the company received several inquiries from folks who wanted to put industrial product on the property. “They said, ‘Absolutely not, that’s not the vision for that site.’ Surprisingly, a number of people came back saying, ‘Well, we can fit industrial into your residential urban village,’ which we again said, ‘Industrial is not going to be a compatible use to the European village feel that we want.’”

To realize the aspiration of creating a walkable urban environment, Betts notes that having the full 68 acres of the mall property was crucial. “All the Humpty Dumpty pieces are put back together again, and I have to give credit to Concord Wilshire for not only acquiring the core asset, but also the other anchors.”

With all that land to work with, the plan is to build 2,600 dwelling units surrounding a town center with 100,000 square feet of service-oriented retail. Future residents will enjoy pet-friendly Parks, an amphitheater, pedestrian and bicycle pathways along with other entertainment options. Existing amenities include the 150,000-square-foot Super Walmart, Harkins Theatre, Castles N’ Coasters amusement park, a public library, restaurants and the nearby Rose Mofford Park.

Even with the wealth of nearby activities, Chris Anderson, senior managing director for Hines, explains that the community will be reasonably priced.

Light Rail 

In the past few months, motorists traveling I-17 have seen something novel — a metal track crossing the freeway from east to west erected over the lanes of traffic south of Peoria Avenue. This isn’t for pedestrians or a typical vehicle overpass. It is the groundwork for where the light rail will travel over the interstate and terminate in front of Metrocenter as part of the $401 million Northwest Light Rail Extension Phase II project from the City of Phoenix.

This was not always the plan, however. The light rail station was originally designed to run parallel with the I-17 east of Metro Parkway, but forward-thinking changed that.

“It was the vision of former Councilwoman Thelda Williams,” Mackay recalls. “She was the one who went to the city manager and said, ‘I want that to end at my mall.’ She envisioned what was going to happen for the next iteration of that mall.”

For CWC, the light rail was crucial to what Betts describes as a transit-oriented development. “It’s an opportunity to construct 2,600 units around a transit station that has access to the airport, ASU, and jobs in downtown and midtown,” he says. “People can use the light rail as their primary source of transportation and have a car for other uses. They could theoretically not have a car at all.”

Even though the community has an emphasis on walkability, there will be approximately 4,100 parking spaces programmed in up to seven garage decks for use by residents, visitors and light rail park-and-ride users.

While nothing has been confirmed, Betts says that there are ongoing discussions as to how to remember the legacy of Metrocenter, whether that be a small museum or by incorporating some of the mall’s architectural elements in the redevelopment. As far as a homage to “Bill and Ted’s Excellent Adventure,” Betts concludes, “I hope that would be part of the historical connection.”