Posted on 08/09/2013 9:26:20 AM PDT by whitedog57
About 20 percent of Quicken mortgage applications are for adjustable rates, up from 5 percent earlier this year.
Why?
As Treasury and mortgage rates started to rise around May 1st, housing affordability has declined. As a result, more borrowers start selecting the lower mortgage rate product hwhich is the 5/1 ARM.
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The spread between the 30 year FRM and the 5/1 ARM is 93 basis points, indicating that the 5/1 ARM is almost a full 1% less expensive.
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Now, you may say “Why should I use a 5/1 ARM when everyone is saying mortgage rates will rise???”
A 5/1 ARM means that your rate is fixed for 5 years then adjusts annually after that. The Mortgage Bankers Assocation is forecasting a 3.20% 10 Year Treasury yield by December 31, 2014, Today, the 10 year Treasury rate is 2.60%, so the MBA is forecasting only 60 basis point increase by December 2014.
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President Obama did call for the preservation of 30 year fixed-rate mortgage (despite it being almost 100 basis points more expensive for consumers). True, ARMs have a higher heand foreclosure rate on average, but the question you have to ask yourself is … if mortgage rates are more than 100 basis points higher in five years, can you handle the rise in payments?
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ARMs as a percentage of mortgages has dropped to a paltry 6% of market share.
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The question you have to ask yourself is “Do you feel lucky?” With regard to future Treasury and mortgage rates?
Here we go again!
Serious question...why the hell would anyone get an ARM when interest rates are at historic lows?
One possible answer...same reason people go to casinos. Personally I like my house payment to be stable and “known”.
We are responsible adults. A majority of Americans only care about the bottom line. They don't care about the future or how that number was reached.
The only answer I can justify would be if you knew you were going to sell before the rates adjusted.
My brother just got a jumbo at 2.75%, rate good for 7 years. He is happy.
I remember all too well how people got burned with ARMs in the early 1980s when mortgage interest rates soared to almost 20%. I knew people whose mortgage payment almost doubled when they got hit with the first rate adjustment. ARMs are a financial Russian Roulette.
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