ARMs Becoming Less Popular with Consumers
Jan 24th, 2008 @ 12:12 PM by MortgageMentor
Freddie Mac recently released its 24th Adjustable Rate Mortgage Survey. The survey is taken during a given week, in this case the week of Dec. 17, and from 112 lenders. The results show that ARMs have dropped off recently, for the first time since 2003. Hopefully this means that borrowers are finally getting the message.
ARMs are not “bad,” but it is important that mortgage holders understand all the ramifications of a fluctuating interest rate. Too often borrowers fall into the sunny-day trap, assuming the rate will remain fairly constant. Then when rates get too high (meaning they can’t afford their monthly payment) they panic.
Interestingly, the Fed has dropped its rates 4.25 percent, which is the equivalent of one full point. But interest rates haven’t changed much since last year’s survey. Freddie Mac’s chief economist, Frank Nothaft, was quoted as saying that the rate discount on 3/1 and 5/1 ARMS has basically disappeared. That is due to the changes in capital markets, as well as the increased delinquencies on ARMs in the recent months. Delinquencies are at about 3.1 %, as compared with 1.1% on prime ARMs at this time last year – and 0.8 % for prime fixed-rate loans. Consumers are responding to the higher cost of ARMS by moving toward fixed-rate loans.
- Posted in Home Equity Loans, Mortgages
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As a mortgage broker for the past 12 years, I’ve talked many people out of ARMS’s. The big craze 5 years ago was the 1 month MTA ARM. I could never sell that to anyone. They have neg. amort. The only people I tell to lock in with an ARM are people who wont be in the house for long, beyond the inital fixed rate. ARM’s are good for them but that’s it in my opinion.
I agree with Christine, Taking arms for a lower payment is a risky business.
I like the good old fashion Fha loan.
http://www.onlinefhaservices.com
ARM’s vs. FIXED – Buy Low, Sell High
It’s simple. When interest rates are high, take an arm. When they are low, as they are currently, lock in a fixed rate. What so many people did wrong was accept an ARM (2/28, 3/27 & Option arm’s) at a time when they should have been going with a fixed. The reason they went with the arm at that time was because property values were over inflated and the lower payment afforded by the arm was the only way they could afford to make the payments.
FOLKS – PLEASE LEARN A LESSON FROM ALL THIS…. If you can’t afford the payment for a fixed rate loan DON”T BUY THE HOME!
http://www.Mortgage123.com