Demand for riskier home loans is high as interest rates soar

by | Oct 12, 2022 | Business

An ‘open house’ flag is displayed outside a single family home on September 22, 2022 in Los Angeles, California.Allison Dinner | Getty ImagesMortgage demand dropped again last week as rates climbed higher, but one type of loan is attracting borrowers. Adjustable-rate mortgages, or ARMs, which offer lower rates, are seeing renewed demand after getting very little interest over the last decade.Total mortgage application volume dropped 2% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index, a consequence of surging rates.The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 6.81% from 6.75%, with points increasing to 0.97 from 0.95 (including the origination fee) for loans with a 20% down payment. That is the highest rate since 2006.”The news that job growth and wage growth continued in September is positive for the housing market, as higher incomes support housing demand. However, it also pushed off the possibility of any near-term pivot from the Federal Reserve on its plans for additional rate hikes,” wrote Michael Fratantoni, MBA’s chief economist in a release.The average rate for 5/1 ARMs, which has a fixed rate for the first five years, increased slightly, but was still lower, at 5.56%. The ARM share of applications was just under 12%. When rates were lower at the start of this year, that share was barely 3%, where it had been for several years.ARMs can be fixed for up to 10 years, but they are co …

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