The prime rate is projected to increase from an average 4.1% in 2003 to 4.3% in 2004 and 6.0% in 2005, and the federal funds rate, 1% today, could hit an average of 3% two years from now.
ARMs, which accounted for only 13% of conventional mortgage originations in June and July, are now accounting for more than 20% of the market, and could command a 25% market share on average next year, according to Frank Nothaft, chief economist for Freddie Mac.
From the end of June through the end of the third week in September, Nothaft said, interest rates on fixed-rate mortgages had climbed about 1.25 percentage points, compared to only 0.50 percentage points on one-year ARMs, making the latter product a more attractive alternative for consumers.
The ARMs share hit a record 69% in October of 1987 and more recently was a high of 59% in January of 1995.
Nothaft’s research finds that ARMs account for a higher share of jumbo mortgages. At a fixed rate, those loans typically cost about half a percentage point higher than a conventional loan, but there is not much difference between jumbo and conventional loan rates for adjustable rate financing.
ARMs accounted for 52% of jumbo home-purchase originations last year, compared to 14% of the conventional market, Nothaft reported.
We Want to Hear From You
Let us know what you think about NBN Online. Please click here to fill out the NBN Online Readers' Survey. Thank you.
[ Go to Top ]