High mortgage rates driving up trend of adjustable-rate mortgages

LOS ANGELES — Mortgage rates more than doubled from a year ago, so many homebuyers are looking to ease the burden for a few years.

This trend has driven adjustable-rate mortgages, or ARMs, to their highest usage in more than a decade.

A recent quick report from the Mortgage Bankers Association found that ARM accounted for 12.8% of all home loan applications in the week ending Oct. 14. The last time these loans accounted for a larger percentage of all home loan applications. in all mortgage applications by the first week of March 2008 .

At the start of the year, ARM accounted for just 3.1% of all mortgage applications. The average rate on a 30-year fixed-rate mortgage later was 3.22%, while last month that rate climbed to 7% – the highest level since 2002.

This week, the average interest rate on a 30-year mortgage fell to 6.58%, according to mortgage buyer Freddie Mac. A year ago, it was 3.1%.

Mortgage rates rose rapidly after a sharp rise in 10-year Treasury yields, which had risen amid expectations for higher interest rates in general as the Federal Reserve raised short-term rates in an attempt to hold down interest rates. inflation at its highest level in decades.

When mortgage rates rise, they can add hundreds of dollars to their monthly mortgage payments. That’s been a significant setback for many people who will buy a home, leading to this year’s housing downturn. Last month, sales of previously occupied US homes fell for the ninth straight month. Annual sales are running at their slowest pre-pandemic pace in more than 10 years.

For home hunters who can still buy a home with current high mortgage rates, reducing their monthly payments with an adjustable-rate loan for the first few years can give them some flexibility. financially active.

For example, a homebuyer taking out a typical 5/1 ARM loan will have a low, fixed interest rate for the first five years of the loan. The loan then switches to an adjustable rate, which can be higher or lower, until the debt is paid off or the buyer refinances the loan.

Another approach that is gaining popularity recently is to lower the interest rate on a 30-year, fixed-rate loan for the first two or three years.

Lowering interest rates on a 30-year mortgage could make monthly payments more manageable — something both homebuilders and homeowners are offering to entice buyers as the housing market slows .

Assume a person borrows a 30-year mortgage with a fixed interest rate of 6%. With what’s known as a 3-2-1 buyback, that homebuyer’s interest rate would be 3% in the first year of the loan, 4% in the second, and 5% in the third year. save them thousands of dollars in the process.

However, borrowers must still be eligible for full monthly payments prior to the buyback adjustment.

https://www.king5.com/article/news/nation-world/high-mortgage-rates-drive-up-adjustable-rate-mortgage-usage/507-2cc6bc6f-5a18-4d67-9f95-bfed6f8f7d96 High mortgage rates driving up trend of adjustable-rate mortgages

Edmund DeMarche

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