(Nov. 30, 2018) The National Association of Realtors recently reported that rising interest rates are prompting more home buyers to turn to adjustable-rate mortgages.
Though these mortgages typically come with lower interest rates initially, they reset to market rates after five or seven years, potentially shocking borrowers with much higher costs.
The percentage of borrowers with ARMs rose to 8.2 percent in October, up from 7.2 percent in September, according to Ellie Mae’s newly released Origination Insight Report.
The Ellie Mae Origination Insight Report provides monthly data and insights from a sampling of closed loan applications through Ellie Mae’s Encompass mortgage management software and Ellie Mae Network.
“As interest rates continue to rise, the percentage of adjustable-rate mortgages is increasing, as home buyers are looking to take advantage of the best rates from their lenders,” said Jonathan Corr, president and CEO of Ellie Mae, a cloud-based platform for the mortgage finance industry.
Freddie Mac reported last week that the 30-year fixed-rate mortgage averaged 4.81 percent compared to a 4.09 percent national average for five-year ARMs.
Ellie Mae’s report also showed:
• The time to close on all loans is on the rise: 45 days in October, up from 44 days in September.
• The average loan to value remained at 79 percent for the third consecutive month.
• FICO scores of applicants averaged 727 in October.
• The average FHA purchase FICO dropped to 676 in October, down one point from September.
• Conventional refinance FICO scores held steady at 733 in October, and Conventional purchase FICO scores remained at 751 for the fourth month.
— Lauren Bunting is a licensed Associate Broker with Bunting Realty, Inc. in Berlin.