Can you believe it\’s already March? I won\’t either, but it is, heck, it\’s almost April if you think about it, without overthinking it.
Anyway, 2017 is well underway as well as news so far in the mortgage world isn\’t all that rosy. The leading headline this current year has been higher mortgage rates, backed with a stronger economy that only seems to be getting stronger. And with that comes lower refinance originations, this is a blow to lenders.
When I made my annual predictions way back in late December, I expected increasing to rise after a pullback. I also felt there\’d be fewer new 15-year fixed mortgages and a lot more ARMs.
Basically, with rates and loan amounts going up, it\’s getting more costly to borrowers to carry a mortgage, so that it would make sense to avoid pricey options, as well as look into cheaper alternatives.
It appears that is what has happened so far, granted we\’re around two months into 2017. Rates within the 30-year fixed started the year around 4.25%, fell to around 4%, and have now climbed back in around 4.375%, depending on the loan attributes.
The very good news is the range has been pretty tight, with rates basically staying between 4% and also at most 4.5%, which means a nominal increase in monthly installment for most folks. We\’re talking anywhere from $25-75 for typical loan amounts, which shouldn\’t hurt your pocket book.
But there will be scenarios where people will need to recalibrate their budgets dependant on eroding purchasing power, especially as home values continue to rise.
ARMs Grab Most Business Since Late 2014
One interesting development we have seen is an increase in adjustable-rate mortgages, which we\’re basically left for dead as soon as the mortgage crisis took hold.
The latest Mortgage Bankers Association mortgage application report said ARMs accounted for 7.7% of total apps, the greatest share since October 2014.
That figure comes to an end from 4.7% in the first week of 2016 and 6.5% from the final weeks of the year. That\’s a fairly jump, though ARMs will always be an afterthought for most. Or otherwise a thought at all.
However, it mortgage rates keep rising, which they\’re most likely to do, somewhat, we might view the ARM-share rise to double-digits this year.
Lenders will also be getting more creative with ARMs this time around, offering longer fixed periods with fewer adjustments.
For example, many lending institution are offering a 5/5 ARM, which is fixed for the first a few years and only adjusts every five years as opposed to annually.
It\’s also not hard to get your hands on a 7/1 or 10/1 ARM, each don\’t adjust for seven and Several years, respectively. Many people don\’t stay in their homes that long, so they can be considered a money saver versus the traditional 30-year fixed.
Is It Time for it to Consider an ARM?
I mentioned the concept of refinancing to an ARM in case you didn\’t expect to stay in your home long, and I think about the same could be true if you ever didn\’t plan on staying in the latest home long either.
But we often underestimate our expected tenure and also the years seem to just fly by. And refinancing into an ARM in what might be a long-term rising rate environment generally is a scary endeavor.
On the other hand, fixed rates haven\’t moved such. As noted, they\’ve been pretty range-bound between 4% and 4.5%. Just consider the Freddie Mac chart above.
And if you ever look at the 2017 mortgage rate predictions from leading economists, the movement looks to generally be fairly limited. Even for 2018, difficult to do are predicting a 30-year fixed interest rate in the 5% range. The last time the 30-year was at the 5s was in early 2010.
So while rates might seem like they\’re spiraling uncontrollable, it\’s only because they\’ve been so low for so long. And low must be investigated in context, not just the last five years.
While higher rates are a good bet, they aren\’t a foregone conclusion.