The Mortgage Professor: The fixed-rate, adjustable-rate decision. Here is a great discussion by the Mortgage Professor over adjustable and fixed rates.
8-1-2014: Almost 20% of the home purchase loans were ARMs in 1Q14.
Just had a client close a Jumbo ARM loan – 5/1 ARM @ 3.25%
6-5-2014: Lenders are back pushing longer term fixed periods of adjustable rate mortgages to people with better risks and qualify under tighter lending standards than before. This time they’re offering one fixed initial interest rate up to 10-15 years after which can adjust up to 5-6% higher interest rate in the year or adjustment. Interesting to note that the average homeowner who sold their home in 2013 owned the property for 9 years. Source: WSJ, May 24-25, 2014, page B8.
3-20-2014: Apparently, about 37% of all mortgage held by banks on their own books were ARMs (my thought: makes sense since the banks sell FHA and Conventional Loans all day long but ARMs are harder to move). ARMs are very popular for homes above $1 million – makes the first year of mortgage payments low enough for most to qualify…Source: WSJ, 3-17-2014.
1-28-2014: Just heard that banks are offering Jumbo 5/5’s – 5 year arms lasting 5 years fixed at one time followed by a rate adjustment that lasts for another 5 years and not an annual rate adjustment period.
Most everyone has heard of them, and they usually start with a low rate, can jump 1-2% per year and have a lifetime cap of 4-6% above where it started.
They’re back and being pumped…but why?
Well, my personal opinion is that since the Federal Reserve is going to start pulling back soon on their $85 Billion per month purchase of Treasuries & Mortgage Securities, interest rates are going to start climbing – and that means they may climb faster on an adjustable rate mortgage than the fixed rate mortgage.
I have to agree with the WSJ article’s offer – don’t stretch yourself too much to squeeze into an expensive home with a terrific starting interest rate.
Source: WSJ, 11-11-2013, R9