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Real estate investing

Fannie Mae introduces hybrid loan product tailored to small, multifamily borrowers

Interest rates are still hovering around record lows, but the loan products that exist don’t always meet the needs of small, multifamily borrowers. In response, Fannie Mae has rolled out a new product for its small-loan product line: the newly-enhanced Hybrid Adjustable-Rate Mortgage.

Fannie Mae calls its Hybrid ARMs a “powerful financing tool” designed to provide flexible, long-term financing and attractive prepayment options aimed at small-loan multifamily borrowers.

Here’s what borrowers need to know:

  • Term:
  • Maximum:
  • Minimum:
  • Interest rate:
  • Margin:
  • Rate Caps:
  • Lifetime interest rate floor:
  • Prepayment availability:
  • Eligibility:
  • Personal guarantee:

“We are very excited to offer our newly enhanced Hybrid ARM to borrowers,” says Mike Winters, vice president for multifamily customer engagement. The product is intended to “provide more liquidity to this market” and serves as a “great example of the collaboration that drives  strong partnership with lenders.”

The rise of Hybrid ARMs

Hybrid ARMs aren’t new. They made their debut in the 1990s as a way for borrowers to take advantage of lower interest rates during the first few years of the loan. When interest rates plummeted, more borrowers opted for the security of 30-year, fixed rate loans.

Now, despite interest rates still being so low, hybrid ARMs are making a comeback.

“Sometimes the hybrid adjustable rate mortgage, given the market condition at the time, could be an attractive option for borrowers,” Hunt Mortgage Group managing director Owen Breheny told Bisnow.

In some markets, cap rates have compressed so significantly that even a marginally lower interest rate can make the numbers on a deal pencil out where they otherwise wouldn’t. The hybrid ARM is one way to tap into lower interest rates.

Who is the Hybrid ARM right for?

“It really depends on the borrower,” Breheny said. “If they believe that LIBOR will remain low and rates will remain stable, it could be an opportunity to take an ARM.”

A Hybrid ARM is particularly appealing because of the interest rate caps it has put in place. Historically, interest rate swings on ARMs have been unpredictable. Borrowers often found themselves paying significantly higher rates than they anticipated. The new product provides more certainty by instituting those caps. And as a result, the Hybrid ARM product could indeed be an appealing way of raising affordable capital.

ARMs come in a variety of shapes and sizes. It’s always best to meet with an experienced lender to discuss which product is best suited for your specific needs. To learn more, contact one of Fannie Mae's delegated underwriting and servicing lenders: DUS lenders or Fannie Mae Multifamily.

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