Here we have the 2002 Freddie mortgage vintage. Although ARMS weren't as popular, the loan of choice appears to be the 3/1 hybrid, which will now get adjusted to a new higher rate this year.
HISTORICALLY LOW FIXED-RATE MORTGAGE RATES KEEP MARKET SHARE OF ARMs LOW
Homebuyers Continue To Opt For Stability Of Low Fixed-Rates
McLean, VA – Freddie Mac released the results of its 19th annual survey of Adjustable Rate Mortgages (ARMs) today, which noted that at the end of 2002, 30-year fixed mortgage rates had fallen to their lowest levels in more than a generation, spurring a wave of home purchases and refinancing activity. Although the most popular choice of mortgage loan among households remains the 30-year fixed-rate mortgage (FRM), where homeowners can secure a fixed, monthly payment over the life of the loan, ARMs accounted for an estimated 17 percent of new mortgage loans originated in 2002, up from 12 percent in 2001..
Another category of ARMs, called hybrid ARMs, extend the initial reset period up to ten years, allowing homeowners additional time to reconcile monthly payment adjustments with expected increases in income or changes in living environments. These interest rates tend to be higher than traditional 1-year ARMs, but usually fall below those of fixed-rate mortgages. Over the last decade, the hybrid ARMs have become more popular.
The most widely offered hybrid ARM was a 3/1 ARM which can save a family nearly $2,400 in monthly payments for the first year, and almost $7,200 for the initial three years of the loan. A "3/1" hybrid has an initial interest rate that remains fixed for three years, but then adjusts annually after that. About three-quarters of ARM lenders offer a 3/1 ARM.
Second on the list was a 5/1 ARM, which offers an initial year reduction of over $1,500 in mortgage payments, but can ease a family's debt burden by about $7,700 over the initial five years. Seventy five percent of lenders are willing extend this type of mortgage.
"The 3/1 ARM and 5/1 ARM have become increasingly popular in the market because they offer consumers an attractive blend of the lower initial rate benefit of an ARM with the benefit of a fixed-interest obligation, albeit only for a few years. Families who plan to be in their homes for three to five years may find these loans beneficial compared to a 30-year fixed-rate loan. Why pay the higher cost for thirty years of protection against interest rate shocks, when you will have the loan for no more than five years?" commented Nothaft. |
