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Yahoo "people are turning towards ARMs for home loans" highest since 2008
Posted on 5/18/22 at 3:46 pm
Posted on 5/18/22 at 3:46 pm
That sounds familiar!
LINK
quote:
The share of ARMs made up 10.8% of overall loans last week, according to MBA, the highest point since March 2008 and more than doubling the 4.4% of purchase application activity for the week ending January 27.
LINK
Posted on 5/18/22 at 3:49 pm to Jjdoc
I probably should have done an ARM a couple of times.
Posted on 5/18/22 at 3:49 pm to Jjdoc
I’ll be getting a 10 year arm when I close on my loan in a few months.
This post was edited on 5/18/22 at 3:50 pm
Posted on 5/18/22 at 3:51 pm to Jjdoc
I think the main difference is lenders have stricter lending requirements now. So theoretically, borrowers should be able to manage those rate changes.
eta: I have a home that should be complete in November. I'm definitely going to consider an ARM
eta: I have a home that should be complete in November. I'm definitely going to consider an ARM
This post was edited on 5/18/22 at 3:52 pm
Posted on 5/18/22 at 4:12 pm to Jjdoc
These things were big in the 80’s and early 90’s
They make sense for a lot of folks . First time home buyers who generally only hold onto a house for a few years could benefit most.
Investment property is another area that it can make sense
They make sense for a lot of folks . First time home buyers who generally only hold onto a house for a few years could benefit most.
Investment property is another area that it can make sense
Posted on 5/18/22 at 5:06 pm to Jjdoc
quote:
"people are turning towards ARMs for home loans" highest since 2008
Have people not learned a single damn thing?! They're gonna be the first ones to start bitching about wanting help with their mortgage payments when their rates start to skyrocket.
Posted on 5/18/22 at 6:37 pm to TDsngumbo
well....technically an ARM can go DOWN depending on the product and of course your long-term projection of interest rates
OR
refinance baby!
same playbook - new era
OR
refinance baby!
same playbook - new era
Posted on 5/18/22 at 6:38 pm to Sterling Archer
quote:
eta: I have a home that should be complete in November. I'm definitely going to consider an ARM
same boat but a couple months ahead of ya.
Posted on 5/18/22 at 6:39 pm to Jjdoc
I did an 10yr in my last home bc I knew I’d refinance or sell before 10yrs.
Been looking for last 2 months and asked the lender about ARM right now and she said she isn’t seeing much lower than normal rate at this point. I haven’t looked.
Been looking for last 2 months and asked the lender about ARM right now and she said she isn’t seeing much lower than normal rate at this point. I haven’t looked.
Posted on 5/18/22 at 7:09 pm to Jjdoc
And now people chime in with how it makes sense for them
EXCEPT for it absolutely doesnt because they wont be able to refinance or sell their house that they owe 370k on that is only worth 340k.
EXCEPT for it absolutely doesnt because they wont be able to refinance or sell their house that they owe 370k on that is only worth 340k.
Posted on 5/18/22 at 7:27 pm to AUjim
quote:
And now people chime in with how it makes sense for them
EXCEPT for it absolutely doesnt because they wont be able to refinance or sell their house that they owe 370k on that is only worth 340k.
meh blanket advice is trash and is not always correct. it does make sense for some...like those who will be selling before the rates adjust.
or for others like newly minted doctors/dentists with less income now but will have huge income growth in a few years.
ARM = bad
debt = bad
blanket advice that doesn't apply to everyone.
Posted on 5/18/22 at 8:17 pm to Jjdoc
I have 5 rentals. 3 on 30 year fixed. 2 on 5 year ARM's
Posted on 5/18/22 at 8:38 pm to SlidellCajun
quote:
They make sense for a lot of folks . First time home buyers who generally only hold onto a house for a few years could benefit most.
Yes, especially if the caps work with their projected timeline for being in the home. A 3-5 yr. ARM might be appropriate for a lot of people. With a so-called “forever” home, probably not. But for those who don’t plan on being in the home for 15-30 years… it’s a sensible option (depending on pricing and terms).
Posted on 5/18/22 at 8:46 pm to Jjdoc
quote:
The share of ARMs made up 10.8% of overall loans last week,
Still need more information to gauge how risky this is. If these are mostly 10 years that's a different risk than mostly five or fewer years.
Posted on 5/18/22 at 8:46 pm to Jjdoc
People want to compare it to 2008, but the issues then but a lot of the problematic ARMs were nothing like the current ones with initial short-term teaser rates and/or interest rates, balloon payments, etc. Furthermore, the lending requirements were much more lax and people, and far lower equity and far higher LTV ratios. Finally, they were building a lot more housing, so prices did not reflect the proper supply and demand equilibrium.
Now, there is a housing shortage (4 million homes) so prices are more reflective of the true supply and demand equilibrium, the lending standards are stricter, people have much more equity in their homes with far lower LTV ratios, AND those problematic ARMs are non-existent.
Most ARM nowadays are locked in for 5, 7, or 10 years, with caps on adjustments when they do switch to adjustable rates. So not only are those more in line with typical mortgage duration (even 30-year mortgages since people either refinance or move), it’s unlikely that there won’t be an opportunity to refinance at a similar or lower rate in 5-10 years. People will also have had a pretty significant amount extra in lower payments with a lower rate, built a significant amount of equity even if prices don’t rise (highly unlikely), and incomes typically increase a significant amount in 5-10 years especially since rates are correlated with wage growth, and a lot of first time homeowners are entering that high wage growth stage of their careers.
Now, there is a housing shortage (4 million homes) so prices are more reflective of the true supply and demand equilibrium, the lending standards are stricter, people have much more equity in their homes with far lower LTV ratios, AND those problematic ARMs are non-existent.
Most ARM nowadays are locked in for 5, 7, or 10 years, with caps on adjustments when they do switch to adjustable rates. So not only are those more in line with typical mortgage duration (even 30-year mortgages since people either refinance or move), it’s unlikely that there won’t be an opportunity to refinance at a similar or lower rate in 5-10 years. People will also have had a pretty significant amount extra in lower payments with a lower rate, built a significant amount of equity even if prices don’t rise (highly unlikely), and incomes typically increase a significant amount in 5-10 years especially since rates are correlated with wage growth, and a lot of first time homeowners are entering that high wage growth stage of their careers.
Posted on 5/18/22 at 8:59 pm to molsusports
quote:Something interesting to look at are the interest rates and the APR differences. For a fixed mortgage, the APR can never be lower than the interest rate, but is almost always higher because of closing costs are calculated.
Still need more information to gauge how risky this is. If these are mostly 10 years that's a different risk than mostly five or fewer years.
On the other hand, from my understanding banks calculate APR under the assumption that the borrower will hold it to maturity (30 years) for ARMs and then make a projection for future rates to determine APR.
So if they project rates to be lower for the remaining 20-25 years, then unlike fixed rate mortgages, the projected APR can be lower than the initial locked in rate. And right now from what I can see, all 5-10 year ARMs have a lower APR so the banks are projecting the rates to decrease after switch to adjustable rates.
Now I don’t know if those projections ever show a higher APR, but I would imagine that is more likely the case when rates can’t go much lower, and the ARM-fixed spread is much lower. That said, since rates are rather high for the post-2008 crash, the projections are assuming they’ll revert closer to that mean. And I think those projections are most reasonable.
In other words, for a number of reasons (most of which I listed in the post above), I don’t think ARMs, are very risky, with lower risks the longer the fixed rate period is. But the banks projected APRs appear to confirm this.
Posted on 5/19/22 at 9:56 am to Sterling Archer
quote:
I think the main difference is lenders have stricter lending requirements now. So theoretically, borrowers should be able to manage those rate changes.
For the moment.
When/if the market freezes up, you are going to see a LOT of pressure on these banks to relax standards.
Posted on 5/19/22 at 9:58 am to buckeye_vol
quote:
Most ARM nowadays are locked in for 5, 7, or 10 years,
Right. If the boom is just starting today... it will be a while before we have any issues with ARMs.
But certainly the trend is concerning. It may work out fine. It may not.
Posted on 5/19/22 at 10:16 am to Jjdoc
I was in a couple of ARMs and never liked the uncertainty (and what certainty there was ended up being bad.)
I'm happy with my 2.49%, 30-year.
I'm happy with my 2.49%, 30-year.
Posted on 5/19/22 at 10:19 am to Jjdoc
I did an ARM a few years ago. For a house I knew I'd be selling before the teaser rates expired.
But I don't think most people who are using ARM's are doing that. They are just hoping for the best while they over-extend themselves. On the bright side, there isn't a lot of inventory for them to buy in my area to screw up the market in 3-5 years with a bunch of foreclosures.
But I don't think most people who are using ARM's are doing that. They are just hoping for the best while they over-extend themselves. On the bright side, there isn't a lot of inventory for them to buy in my area to screw up the market in 3-5 years with a bunch of foreclosures.
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