Homebuyers Rush to Riskier Mortgages as Home Prices Heat Up #finance #realestate #mortgage #investment

Source:  CNBC

Home prices are heating up yet again, and that is sending more potential buyers looking for ways to afford a monthly mortgage payment.  The number of adjustable-rate mortgage originations jumped just over 40 percent from the first quarter of this year to the second, according to analysis by Inside Mortgage Finance.  ARMs offer lower interest rates than fixed-rate loans, and today's ARMs usually have a fixed period of at least five years.  That means the rate can change after five years.  Still ARMs are considered riskier than the classic 30-year fixed mortgage.

The average contract interest rate on 30-year-fixed mortgages with conforming balances was 4.11 percent last week, according to the Mortgage Bankers Association.  Compare that with the rate on a five-year ARM, which was 3.38 percent.  The rate on an adjustable-rate loan, by definition, will change after the fixed period, moving higher or lower, depending on the broader market rate.

ARM demand usually rises from the first quarter to the second quarter, because spring is the busiest season for homebuying, and it's when families dominate the market, searching for bigger, higher-priced homes.  Still, the jump in ARMs in the spring of 2016 was 15 percent compared with this year's 40 percent jump.  This makes the case that buyers this year are struggling with a affordability and opting for a lower-rate product.

Check out the full story here:
https://www.cnbc.com/2017/10/03/rising-heat-in-home-prices-makes-buyers-rush-to-riskier-mortgages.html

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