Strong demand for ARMs

Market News

The Mortgage Bankers Association reports that applications for adjustable-rate mortgages rose by 10 percent last week. Overall, mortgage applications increased by 8 percent.

The average loan size was $420,000, down considerably from $460,000 earlier in the year.

Active home inventory also increased by 17 percent over a year ago.

Will adjustable-rate mortgages become more common?

Green Escrow | Real Estate News

As 30-year fixed-rate mortgages continue to rise – averaged 4.67percent during the last week in March – adjustable-rate mortgages may be just the answer for some homebuyers. Last week the five-year ARM averaged 3.5 percent.

Of course, ARMs are risker than 30-year fixed-rate mortgages. Once the lock period ends – typically three, five, or seven years – the borrower must pay a higher rate, often – but not always – capped at 2 percentage points over the initial payment for the first adjustment.

Analysts say that ARMs are often chosen for higher-priced homes where the savings can be significant.

Adjustable-rate mortgages increasing

Green Escrow | Real Estate online

As buyer demand increases and inventory remains low, many first-time home shoppers are getting creative as they find their budgets stretched. Some are putting less money down while others are choosing adjustable-rate mortgages in an all-out effort to win the inevitable bidding war. Many realize that they’re not going to be in that particular house for 30 years and it makes sense to at least enter the game at a price they can afford.

Other strategies include lower down payments – Freddie Mac has recently launched a three-percent down option as well as “nonprime” loans which are an outgrowth of the infamous subprime mortgages.