WASHINGTON–Mortgage rates moving in a zigzag pattern have removed much of the appeal of adjustable-rate loans (ARMs), according to a new report.
“When the Federal Reserve began aggressively increasing interest rates last year, home buyers turned to ARMs, hoping to lower their mortgage costs,” the Wall Street Journal reported. “Now, they aren’t saving much money at all, and in some cases they are paying more.”
The report noted, for example, that one common type of ARM came with a rate of approximately 7.04% for the first five years on average this month, according to Optimal Blue, a mortgage technology and data company. That was higher than the comparable 30-year fixed mortgage rate of 6.86%, the Journal analysis added.
“The Fed is…behind the diminishing attractiveness of ARMs,” the Journal stated. “ARM interest rates were still significantly lower than those on fixed-rate mortgages throughout 2022, when the Fed first started raising rates. Lenders were slower to lift rates on ARMs, in part because banks often make the adjustable loans to well-off customers whom they consider low risk.”
As credit unions are aware, differences in the benchmarks used in ARMs and 30-year-fixed-rate mortgages can also contribute to making ARMs less attractive, the report stated.
But if the Fed starts cutting rates, short-term rates could drop back below long-term rates, reintroducing an ARM benefit, Barry Habib, chief executive of mortgage-software company Highway, told the Journal.
Share Doubles
The report further noted that ARMs made up just more than 7% of all mortgage applications this year, according to the Mortgage Bankers Association.
“Though they aren’t a huge part of the market, they doubled as a share of all mortgage applications in 2022 and 2023 from the two years prior,” the Journal stated.
The Best Way to Start a New Year. With Something Free.
The biggest, best and freshest news reporting in credit unions remains free! Each morning CUToday.info delivers its daily Fresh Today news update offering the latest headlines and breaking news right to your email, with the easy-to-read headlines format allowing you to click on the stories that interest you most in order to learn more. So stop paying those bank-fee-like subscription prices from other so-called “news” publications!
If you haven’t yet signed up for the new email solution on which CUToday.info has partnered with ResponseGenius, you can do so here. Signing up requires less than one minute of your time—and it’s free!
Please note that after signing up you may need to go to your Spam/Junk folder and mark the morning headlines email as safe. CUToday.info does not provide its list of readers and emails to outside parties, and we will not be contacting you to sell you an extended warranty or sending you any links so you may cash in on an inheritance you didn’t know was coming.
And did we mention it’s free?