As Mortgage Rates Rise, So Does the Share of Adjustable Rate Mortgages

A Week of Rising Rates

The Mortgage Bankers Association (MBA), through its most recent Weekly Applications Survey, just reported a noticeable uptick in average mortgage interest rates. These increases were observed consistently across the entire spectrum of loan categories, including 30-year fixed-rate loans (for both conforming and jumbo balances), 15-year fixed-rate loans, FHA loans, and 5/1 Adjustable Rate Mortgages (ARMs).

Adjustable Rate Mortgages Gain Traction

A noteworthy data point revealed by the survey is the renewed interest in adjustable-rate mortgages. Joel Kan, the MBA's vice president and deputy chief economist, commented, “The ARM share of applications increased to 7.6 percent, the highest level in five months, and the number of ARM applications picked up by 4 percent last week.”

Kan further elaborated on the underlying reason for this growing appeal. He stated, “Some home buyers are looking to lower their monthly payments by accepting some interest rate risk after the initial fixed period.”

The most common ARM product is the 5/1. With a 5/1 ARM, the borrower enjoys an initial rate somewhat lower than what would typically be available with a 30-year fixed-rate product, but after 5 years the interest rate can adjust based on prevailing market conditions. For homebuyers who are fairly confident that they will either sell or refinance within the next 5 years, this could be a good option to consider.

Impact on Mortgage Applications

While the surge in ARMs paints one part of the picture, the overall landscape experienced some contraction due to the rise in rates. The overall demand for mortgage applications dipped by 4.2 percent in the last week. This decline was more pronounced in the home purchase segment, which saw a decrease in demand by 5 percent.

About the MBA's Weekly Survey

For those unfamiliar with the source of these insights, it's worth noting that the MBA's weekly survey isn't a new endeavor. Since 1990, the association has been consistently monitoring the pulse of the market. Their survey encompasses a substantial portion of the market, covering a staggering 75 percent of all retail residential mortgage applications, which makes their findings particularly valuable.

What Does This Mean For Homebuyers?

It’s important to remember that rates, demand, and preferences all fluctuate based on numerous factors. If you’ve been considering making a move but are waiting on the sidelines in hopes of mortgage rates coming down, you may want to consider purchasing now to eliminate the risk of purchasing in an environment when rates are even higher, especially since prices seem to be continuing their trajectory upward. If rates do come down in the future, refinancing is always an option. Also, if you’re not purchasing your “forever home” then you may want to consider weighing the pros and cons of an adjustable-rate mortgage.


Post a Comment

Blog Archives

Posts By Category

All Categories Insurance (2) Lifestyle (5) Market Updates (1199) Mortgage (31) Personal Finance (22) Real Estate (330)

Posts By Month

Grab Our RSS Feed

Upstate, SC Communities

Midlands, SC Communities