Monday, March 17, 2014

ARMs length

ARMs comprised 31% of mortgages in the $417,001-to-$1 million range that were originated during the fourth quarter of 2013, according to data prepared for The Wall Street Journal by Black Knight Financial Services, formerly Lender Processing Services, a mortgage-data and services company. That is up from 22% a year earlier and the largest proportion since the third quarter of 2008.On mortgages of more than $1 million, 61% were ARMs, up from 56% a year earlier.
....Banks are betting rates will rise high enough for them to offset any interest they give up in the first few years. Borrowers are betting rates will either stay relatively low, or that they will sell their homes before their interest adjusts higher.
Let the gamesmanship begin;
Last month, Richard Herrmann of Fairfax County, Va., refinanced out of a 30-year fixed-rate mortgage with a 4.875% rate into an ARM with a fixed interest rate of 2.875% for the first five years. The loan rate resets every five years. Mr. Herrmann, a 59-year-old engineer for the U.S. military, and his wife plan to sell their home in 10 years, so they are only expecting to incur one rate reset.
"It's always a crapshoot with an ARM," said Mr. Herrmann. "This seemed to be the best compromise."
Time will tell.

No comments:

Post a Comment