NEW YORK – Jan. 15, 2014 – Adjustable-rate mortgages (ARMs) fell out of favor with borrowers when the housing market came crashing down, but last year they started what could turn into a full-fledged comeback.
With property prices and mortgage rates creeping up in 2013, more consumers saw ARMs as a way to keep their monthly payments in a workable range. And their popularity is poised to grow even more in 2014, with experts forecasting higher interest rates.
The going rate on a 30-year fixed loan hit 4.48 percent last week, but a five-year ARM averaged just 3 percent.
Industry insiders say ARMs are most appropriate for homebuyers who expect to move after only a few years or for those who have high, but irregular, income.
Gary Kalman of the Center for Responsible Lending believes ARMs could also benefit others, such as a family in which one parent will return to work after staying home with the kids.
“I don’t think the product, in and of itself, is inherently a bad product,” Kalman says. While ARMs did catch some of the blame for the housing meltdown, lenders since have mostly eliminated “option” ARMs and other high-risk variations.
“The ARM products that remain in the marketplace today … are really venerable, long-dated products,” according to Keith Gumbinger of HSH.com. In addition, new federal regulations that took effect this month should further curtail some of the riskier ARMs, such as interest-only products and those with balloon payments.
Source: Los Angeles Times (01/01/14) Khouri, Andrew
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