Demand for Adjustable-Rate Loans Expected to Rise

Julie C. Nichols General

M Report – Torry Barringer

In the growing arena of adjustable-rate mortgages (ARMs), hybrid products continue to attract the most interest, Freddie Mac revealed in its 30th Annual ARM Survey. As fixed interest rates continue on their upward path, ARM initial-period rates remain near historic lows—a stat the GSE anticipates will factor into borrowing decisions in the year ahead. “Homebuyers have preferred fixed-rate mortgages the past few years because of the low interest rates and the certainty of the monthly principal and interest payment,” said Frank Nothaft, VP and chief economist for Freddie Mac.

“As longer-term interest rates rise, ARMs with their lower initial interest rates will become more appealing to loan applicants. “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 2014,” he added. ARMs accounted for about 10 percent of new home purchase loans in 2013, according to data from the Federal Housing Finance Agency.

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