Riskier Loan Types
Higher home prices, the continued lack of inventory and an increase in interest rates seem to have stalled the housing market. For five of the past six months home sales have been down. While the number mortgage applications to purchase a home are still up compared to last year, compared to historical averages, these numbers are still way down. It is a market in need of a fix.
The increase in prices, spurred by demand from first-time homebuyers and those getting back into the market after the housing crisis, has impacted affordability for many potential buyers. One option to lessen that impact might be an ARM loan. Some media outlets recently reported on dramatic increases in what they term as a “riskier” loan option.
While “risker” is more of a “subjective” term than it has been in the past given new regulation and underwriting standards which significantly mitigate that risk, a fixed rate loan makes the most sense for a majority of first-time homebuyers or those reentering the market after some negative event during the crisis. However, in today’s market, ARM’s can be an attractive option for some buyers. Based on recently reported rates from Freddie Mac, a borrower earning about $6,000 per month can get about $12-$15K in additional buying power if electing to go with the lower rates offered with a 5/1 ARM loan option.
For most consumers the fixed rate mortgage is still the best option and the market as a whole. ARM’s are a good choice for the right consumer. But they are not a fix for the market. Let Embrace work with your buyers to identify the best mortgage product for them, it may be an ARM loan. Putting your clients in the right mortgage product now, a loan product they can comfortably manage, increases the chances they will be repeat clients in the future.