The share of mortgage applications with adjustable-rate mortgages doubled last week when compared to three months ago, the Mortgage Bankers Association reported Wednesday. ARMs, which start at one rate and then fluctuate after a set period, comprised more than 9% of loans and 17% of the dollar volume.
ARMs were blamed for contributing to the housing bubble of the mid-2000s, offering teaser low rates to borrowers that, once they reset, led to some homeowners no longer being able to afford their mortgage. Lenders say they’re stricter about who qualifies for ARMs nowadays.
The latest lower introductory rates from ARMs may grow more enticing as home buyers watch other rates quickly climb. The average contract interest rate for the 30-year fixed-rate mortgage with conforming loan balances ($647,200 or less) rose to 5.37% last week. That is up from 3.17% just a year ago, the Mortgage Bankers Association reports. The average rate on a 5-year ARM, however, was 4.28% last week.
Read the complete article at:
“Adjustable-Rate Mortgage Demand Doubles as Interest Rates Hit the Highest Since 2009,” CNBC (April 27, 2022)
Rob’s take:
“Adjustable-rate mortgages offer borrowers a lower rate along with a lower monthly payment. ARMs can be a smart alternative — especially considering that fewer than 10% of borrowers stay in the same mortgage for over seven years and that the initial rate could save them hundreds of dollars each month. ARMs are also appealing to borrowers interested in short-term loans on investment properties.”
ARM options are available on Conventional, Conventional High Balance and Prime Jumbo loans. Guidelines vary depending on the program.
Based on latest industry-standard SOFR (Secured Overnight Financing Rate) index
Fixed rate for 5, 7 or 10 years, then adjust every 6 months with 1% cap at each adjustment
PRIME JUMBO ARMS (5-, 7- AND 10-YEAR)
Loan amounts up to $3M
680+ FICO and up to 45% DTI
Up to 80% LTV
Eligible on primary, second and investment properties for purchases, rate/term and cash-out refinances
One appraisal required for purchase up to $3M and refinances up to $2M*
Two appraisals from two different appraisers required for refinances over $2M*
Loan amounts greater than $2M require 18 months of reserves in addition to any reserves required by AUS
PRIME JUMBO INTEREST ONLY (30-YEAR FIXED)
Loan amounts up to $3M
700+ FICO and up to 43% DTI
Up to 80% LTV
10-year interest only, 20-year amortization period
Eligible for primary and second homes for purchases and rate/term refinances
One appraisal required for purchases up to $3M and refinances up to $2M*
Two appraisals from two different appraisers required for refinances over $2M*
Loan amounts up to $1M require 12 months of reserves in addition to any reserves required by AUS
Loan amounts over $1M require 24 months of reserves in addition to any reserves required by AUS
*Terms and conditions apply: not everyone will qualify.
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