Adjustable-rate mortgages see record low rates in 2012
ARM rates lower than ever
Interest rates for adjustable-rate mortgages (ARMs) hit record-low levels in 2012, Freddie Mac said in a recent report.
According to Freddie Mac’s Adjustable-Rate Mortgage (ARM) Survey of prime loan offerings, ARM rates hit the lowest levels ever recorded in the yearly survey. This is the 29th year of the ARM Survey.
Monetary policy from the Federal Reserve has helped to keep short-term mortgage rates at very low levels, Freddie Mac noted, and has also help to lower longer-term mortgage rates, as well.
But record-low ARM rates haven’t necessarily resulted in higher levels of ARM activity.
“Homebuyers have shied away from ARMs, particularly 1-year ARMs, because they are wary of the risk and uncertainty,” Frank Nothaft, vice president and chief economist at Freddie Mac, said in a statement. “The potential for much larger payments if, interest rates are significantly higher in the future, and the high delinquency rates borrowers have experienced on ARMs in recent years, have led consumers to prefer fixed-rate loans instead of ARMs.”
Nothaft continued: “In addition, fixed-rate loans currently carry rates near historic lows, and only a small amount above initial rates on ARMs.”
Average rates for popular 30-year fixed-rate mortgages continually fell to new record lows throughout much of 2012.
However, homeowners could be leaving savings on the table by overwhelmingly choosing fixed mortgages over ARMs.
For example, as Freddie Mac noted in the report, a borrower who chooses a 5-year ARM over a 30-year fixed mortgage – and therefore gets a mortgage rate that is 0.65 percentage points lower – would have about $90 per month on mortgage payments over the first five years of the ($250,000) loan.
“During 2012, ARMs comprised one-in-ten new home-purchase loans, according to the Federal Housing Finance Agency,” Nothaft said. “We are expecting ARMs to gradually gain back some favor with mortgage borrowers, with the ARM share rising to 12 percent of the home-purchase market in 2013.”