Adjustable-Rate Mortgages More Popular as Fixed Rates Climb

Adjustable-Rate Mortgages More Popular as Fixed Rates ClimbBy now, most participants in the housing market are aware that fixed-rate mortgages are coming off their
all-time lows, hovering near or at 4 percent.
That run-up is leaving adjustable-rate mortgages, or ARMS, as a more popular option for many purchasing or refinancing homes.
The share of conventional-mortgage applications for ARMs rose from 13 percent of dollar volume at the
beginning of May to 17 percent last week, according to the Mortgage Bankers Association.
Unlike fixed-rate mortgages, adjustable-rate loans are usually tied to indexes representing U.S. Treasuries or other market indicators, and the interest rate changes accordingly, up or down, over a determined time period .
The rates on ARMs have also been rising, but not as much as fixed-rate loans and the ARM rates remain lower than a year ago.
For example, the 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.79 percent this week up from last week when it averaged 2.74 percent. A year ago, the 5-year ARM averaged 2.80 percent.
The 1-year Treasury-indexed ARM averaged 2.58 percent this week, the same as last week. At this time last year, the 1-year ARM averaged 2.78 percent.
Freddie Mac reported on ARMs becoming more popular in its weekly update on average mortgage rates, which again shows the 30-year-fixed rate climbing.
This week, the 30-year rate is at 3.98 percent, up from last week when it averaged 3.91 percent. A year ago, the 30-year fixed averaged 3.71 percent.
The 15-year fixed rate this week averaged 3.10 percent, up from last week when it averaged 3.03 percent. A year ago at this time, the 15-year fixed rate averaged 2.98 percent.
“Fixed mortgage rates crept up further this week following a solid employment report for May,” said Frank
Nothaft, vice president and chief economist, Freddie Mac.
The economy added 175,000 new jobs in May and the number of discouraged workers fell by 780,000 to the fewest since September 2009. The unemployment rate ticked up to 7.6 percent, but that was mainly due to a 420,000 increase in the size of the labor force.
A healthier economy and signs that the Federal Reserve will pull back on monthly bond-buying stimulus program continue to push nudge rates higher.
Since mortgage rates began their climb last month, the 30-year fixed-rate mortgage has increased over half a percentage point.
Regardless, Freddie Mac points out, fixed rates are still in historically low territory.

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