With mortgage rates on the rise in recent weeks, some home buyers are already being priced out because of the uptick — leading some to reconsider riskier mortgage products than the popular 30-year fixed-rate mortgage. After all, other mortgage options still offer lower rates at the moment, and their popularity likely will grow as fixed-rate mortgages continue to rise.
The adjustable-rate mortgage has the stigma of being blamed for the housing crash, when lenders were offering “creative” ARMs, like no down payments, low teaser rates, or interest-only payments and loans that actually grew over time (known as negative amortization). New mortgage regulations have cast most of those products as now illegal. But ARMs are still on the market, and some financial experts say they can be low-risk.
"These aren't the ARMs of the past," Mat Ishbia, president and CEO of United Wholesale Mortgage, told CNBC. "It's not any more difficult for a borrower to qualify for an ARM than a fixed-rate mortgage, as long as the term of the ARM is over five years."
The ARMs of today require principal and interest payments. The rate also can be fixed for up to 10 years so that there is no change with the interest rate during that time.
ARMs now comprise only about 6 percent of total mortgage applications. In 2006, they accounted for 35 percent of the share.
The average rate on the 30-year fixed-rate mortgage was 4.16 percent last week. In comparison, the 5-year ARM averaged 3.19 percent, according to Freddie Mac’s mortgage market survey.
“I think you're going to see more programs focusing on ARMs,” says Joe Tyrrell, executive vice president of corporate strategy at Ellie Mae. “I think you'll see more flexibility in the terms."
Source: “How This ‘Villain’ of the Housing Crash Could Be Right for You Now,” CNBC (Dec. 19, 2016)
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