If you’re changing your mind and considering getting an adjustable rate mortgage because of the lower rates of ARM home loans, think again. Only when you’re sure you’ve covered the risks that you should put your signature into something that can change and drag you down.
Remember, it was the huge percentage of ARM loans that largely triggered the fall of the housing market in 2007 and 2008. People rushed to buy overpriced homes when low-cost loans became available everywhere and they needed only to move the pen on a few documents to get the loans.
But why are ARMs surging in popularity again? Have Americans not learned a lesson? According to reports, Bank of America, Equity Now, regional and national banks and the FHA are seeing a rise in ARM applications and approvals. BofA, for example, reported that its February 2011 ARM loan volume was nearly double that of February last year. The share of ARMs also surged, with ten percent of all home loans carrying ARM rates.
Analysts of the trend explain that there are significant differences between the ARM trend these days and the ARM trend back in 2007 and 2008. The differences include the following:
1. The ARMs before were promo-driven loans. Lenders raced against each other for borrowers, seducing prospective buyers with no-down and low-monthly loans and assuring these borrowers that they can always refinance before the loans will adjust to higher rates.
2. A huge percentage of the ARMS before were interest-only loans. To keep the initial payments down and thereby get more customers, lenders offered schemes where borrowers pay only the interest for the first months. In more ethical times, lenders offered exotic loans only to persons known to have the financial capability to cover initial step-downs in payments.
Today, the times are better suited for ARMs, according to real estate and mortgage professionals, and these are the reasons:
1. Underwriting processes are stricter now, so only those who have the means to make monthly home loan payments and who can handle the consequences of lower mortgage rates are granted funding.
2. Home prices are much lower now, so loan amounts to be amortized are lower. There’s no need for risky mortgage remedies to attract borrowers.
According to lenders, the most popular ARMs are the 5/1 and 7/1 mortgages which are offered at rates lower by 1.5 to 2 percentage points than fixed-rate 30-year mortgages. If you’re considering ARMs, check out FHA ARM loan packages that have lower reset caps.
The best national mortgage lenders have lending operations in Tampa. You can request for pre-qualification and then ask a Tampa4U.com professional to show you the best affordable Tampa homes.