Demand for riskier mortgages rises as interest rates soar

Demand for mortgages fell again last week as interest rates rose, but one type of loan is attracting borrowers. Low interest rate variable rate mortgages (ARMs) have seen little interest over the past decade, but we are seeing renewed demand.

The Mortgage Bankers Association’s seasonally adjusted index showed total mortgage applications were down 2% last week from the previous week, as a result of the sharp rise in interest rates.

Average contractual interest rates for 30-year fixed-rate mortgages rose from 6.75% to 6.81% with matching loan balances ($647,200 or less), a point increase from 0.95 (including origination fees) to 0.97. payment. This is the highest value since 2006.

“The news that job growth and wage growth continued in September is positive for the housing market, with rising incomes supporting housing demand. We’ve ruled out the possibility of reorienting our plans in the near future: a hike,” MBA chief economist Michael Fratantoni wrote in the release.

The average fixed rate 5/1 ARM rose slightly over the first five years, but remained low at 5.56%. ARM share of applications was just under 12%. When interest rates fell earlier this year, its share was just 3%, and has been for the last few years.

ARMs can be fixed for up to 10 years, but are considered riskier loans as the interest rate will eventually adjust to the market rate. Interest rates have been so low for so long that borrowers didn’t have to take on any additional risk before they started rising.

Rising interest rates across the board further squelched refinancing demand, with applications down 2% for the week, down 86% from the previous week. At this rate level, only 150,000 borrowers could benefit from refinancing, according to mortgage technology and analytics firm Black Knight.

Mortgage applications to buy a home are down 2% in the week and 39% less than a year ago. Buyers retreated this fall as rising interest rates made affordability even worse. Home prices are starting to settle, but potential buyers are also concerned that buying now could cause the value of their new home to fall next year. We are cautious about making large investments.

Mortgage rates rose further this week. Another Mortgage News Daily survey found that the 30-year fix is ​​now well over 7%. All eyes are on Thursday’s latest inflation report. It could move interest rates decisively in either direction.

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