Daily News

MBA Urges Regulators To Avoid Invoking Suitability Standards
The Mortgage Bankers Association (MBA) recently made a preemptive strike against what it obviously perceives as the next threat against the mortgage industry - "suitability standards." Read more...

 

Mortgages are more expensive

Rising interest rates are making people a lot wearier about taking out a mortgage, and are causing a lot of trouble for people in their current mortgages.

The Federal Reserve recently put a stop to raising the interest rates after two years and 17 consecutive rate hikes. Although they put a stop to the hikes, interest rates still could be going up again.

The housing market is slowing, so the overall real estate environment is not looking to good as of right now, and this goes for mortgages as well.

The article, “Long-term mortgages are getting more expensive as rates rise,” by Ruth Simon of The Wall Street Journal Online, discusses the current situation of the mortgage world.

“ While still relatively low by historical standards, the fixed rate on the average 30-year mortgage is about 6.5%, its highest level in more than two years, according to HSH Associates in Pompton Plains, N.J. Rates on one-year adjustables currently average 5.29%, the highest level since April 2002. The increases are already having a broad impact. A growing number of borrowers are shunning the risk of adjustable mortgages and some are moving to lock in rates for longer periods.”

Since the interest rate environment is so unsteady and risky right now, most people do not want to take the chance of getting trapped in an adjustable-rate mortgage that could skyrocket in a few months. Instead, they want to play it safe with a fixed-rate mortgage, but this too is more expensive than in the past.

“A growing number of borrowers are opting for loans that provide them with predictability, instead of the lowest payment possible. At IndyMac Bancorp Inc., fixed-rate mortgages accounted for roughly 29% of loan volume in the third quarter, up from about 21% in the second quarter. And at U.S. Bank Home Mortgage, a unit of U.S. Bancorp, adjustable-rate loans account for about 25% of its mortgage volume, down from 33% a few weeks ago.”

Lenders are trying to attract weary borrowers by offering alternative mortgages to their clients. One such is the interest-only mortgage which has become increasingly popular recently. Another is hybrid ARMs which combine adjustable-rate mortgages with fixed-rate.

“Interest-only loans allow borrowers to lower their payments in the early years. But borrowers can face sharply higher payments when the interest-only period ends, typically after five or 10 years. “

“To shave a bit off their rate, borrowers should consider hybrid ARMs, some analysts suggest. Hybrid ARMs carry a fixed rate for as long as 10 years.”

Since the high costs of borrowing in the future will be the most painful for those with ARMS, it is suggested that they try to get a better loan right now.

“Wells Fargo & Co. two months ago began contacting borrowers with adjustable-rate mortgages in an effort to draw attention to what could happen to their monthly payments when rates adjust and to see if they want to refinance. The bank also is promoting its ‘Flex/Fixed’ mortgage, which allows borrowers to buy down the rate in the first year or two by agreeing to pay a somewhat higher rate for the remaining term of their mortgage.”

Back to Articles