Hello LOs!
Rapidly rising mortgage rates and high home prices are fueling a comeback of adjustable-rate mortgages. Homebuyers and homeowners are fighting back by considering loans that carry lower rates in their early years.
Applications for ARMs rose to a 14-year high to 10.8% in May compared to just 3% at the beginning of the year, according to the Mortgage Bankers Association.
"As rates have moved higher, ARM loans have gotten more attractive to borrowers because it gives them a lower monthly payment," said Joel Kan, associate vice president of economic and industry forecasting at the MBA. "Borrowers are certainly looking to gain any kind of advantage they can."
The interest rate for a 5-year ARM was 3.98% for the first five years, with annual adjustments, compared to 5.30% for a conventional 30-year fixed rate purchase mortgage.
Most of the loan officers I spoke to said consumers interested in ARMs tend to be savvy older individuals who have had ARMs before, but many consumers think the cost to get ARMs are not worth the risk compared to a 30-year mortgage rate.
"The conventional 30-year mortgage rate would have to be in the mid to high 5%-range for the ARM to be in the high 3%-range," said a loan officer in Washington. "That's where it would make sense for a 5/1 ARM. If we can get that, to me saving a percent, yes, that's beneficial. But is it really worth the cost of it?"
Given that most investors weren't offering ARM products two months ago, the loan officer said he's giving at least three months to monitor whether ARMs are viable going forward.
LOs, what ARM products have you been offering and how high do you think interest rates have to be for ARMs to really gain traction? Please share your thoughts with me at connie@hwmedia.com
Connie Kim
Mortgage reporter HousingWire
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