ARMs offer borrowers low rates in midst of political transition


Low interest rates still available despite recent increases

While the results of Election Day changed the political landscape, they also had a significant impact on the financial markets. In the weeks that followed Donald Trump’s victory, the stock market rallied to historic highs, thanks in part to the belief that the President-elect will loosen regulation and give corporate earnings a boost, particularly in the pharmaceutical and banking sectors.

The initial impact on mortgage interest rates, however, has not been favorable. Concerns that government deficit could increase substantially have in part fueled sharp increases for mortgage rates since the election. Rates for 30-year fixed rate mortgages, specifically, hovered around 3.375% prior to the election and have climbed to approximately 4% since then. However, borrowers can still find affordable mortgage rates around 3% or lower by considering an adjustable rate mortgage (ARM).

Although ARMs were the tool of choice by some mortgage brokers to produce subprime loans prior to the housing crisis, today’s ARM products barely resemble their high-risk predecessors. Modern ARMs have low-cap structures, protecting the borrower from massive, instantaneous increases in their mortgage payment at the end of the loan’s fixed period (typically 5 or 7 years). There have also been huge improvements in compliance and the disclosure process for ARMs, making the products more transparent to borrowers.

Low interest rates aren’t completely off the table, even with rising 30-year mortgage rates. And, borrowers who missed the refi-window in 2016 can still find a very good opportunity by considering a 5- or 7-year adjustable rate mortgage.

It’s time we gave ARMs another chance.

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