More about adjustable rate mortgages
My previous entry was an attempt to understand why people are taking adjustable rate mortgages in the current realtively low-interest-rate climate. Well, a wire story out today confirms my conclusions--both about the reasons for people taking out ARMs and the their dangers:
Some 36.6% of mortgages, including refinancings and new purchases, had adjustable rates last week, the Mortgage Bankers Association said Wednesday. That's up more than 3 percentage points from the prior week and 9 percentage points from a year ago
With the average rate on a one-year, adjustable-rate mortgage at 4.39% and housing prices continuing to rise in many areas, buyers seeking to keep payments low are opting for ARMs. But some economists warn that homeowners might run into trouble if interest rates are higher and their payments rise when their fixed-rate period ends, typically in one to seven years.
That could also cause problems for the economy if consumers, whose spending accounts for more than two-thirds of U.S. economic activity, are forced to pinch pennies to pay mortgages, or to default.
"While ARMs buy home buyers some relief in housing affordability in the short run, the longer-run implications ... can be negative," says Celia Chen, director of housing economics at Economy.com.
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Careful With Adjustable Rate Mortgages
Excerpt: Economists are warning that ARMs that look good today may not look so good shortly....
Weblog: Mortgage Calculator
Tracked: April 6, 2005 10:55 AM