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ARMs Winning Popularity Contest in Mortgage Marketplace
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Tuesday April 5, 2005
WASHINGTON DC - Home buyers throughout the U.S. seem to be
favoring ARM (adjustable
rate mortgage) financing for home purchases on an ever-increasing level so
far in 2005. Trend analysis of loan origination facts shows that until this year
home buyers have leaned significantly more toward traditional fixed interest
rate mortgage programs. This may be good for home buyers, but U.S. economists
seem a bit troubled by the increase in
ARM mortgage trending of late.
The main concern is that economists feel a substantive number of home buyers
opting for variable rate mortgages
may run into problems if interest rates continue to increase largely because the
median borrower of this nature appears financially strained to begin with. To
elaborate: Imagine what happens when payments rise in harmony with interest
rates. Now factor in that when their fixed-rate
period ends, typically in one to seven years, they are to absorb the increases
in payment amounts and how that is harmonious with other inflation, etc.
The Mortgage Bankers Association (MBA) indicates that last week's analysis of
the mortgage market shows that 36.6 percent of all mortgage activity, which
includes refinancing and purchase money, were funded with loans carrying
adjustable rates. This is a record for the industry. Activity was up 3
percentage points compared to last week, and a whopping 9 percentage points
higher than one year ago (2004).
In other related news, there was another slight gain in the average rate for
fixed 30-year mortgages.
Fixed rate conventional mortgage figures went
slightly beyond the 6 percent mark for the first time since last June. When you
compare this to the average rate on one-year ARM at 4.39 percent you can easily
see why the shift in preference looks good on paper to the ARM mortgage home
buyer or refinance borrower in the short term.
Housing prices country wide are still on the rise, so it all adds up to why home
buyers are trying find the lowest mortgage rate or program for
low payments by opting for adjustable rate loans.
There have been numerous economic experts saying homeowners have become
adept at knowing the mortgage game and will be likely to
refinance in order to
get a mortgage rate lock before mortgage APRs move upwards.
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