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As mortgage rates jumped this week, borrowers
got nervous and they applied in greater numbers for adjustable-rate
loans.
The benchmark 30-year fixed-rate mortgage
rose 13 basis points to 6.00 percent, according to the Bankrate.com
national survey of large lenders. A basis point is one-hundredth
of 1 percentage point. The mortgages in this week's survey
had an average total of 0.30 discount and origination points.
One year ago, the mortgage index reached its lowest point
of 2004, at 5.41 percent.
The benchmark 15-year fixed-rate mortgage rose
15 basis points to 5.56 percent. The benchmark 5/1 adjustable-rate
mortgage rose 11 points to 5.41 percent.
The 30-year rate had been under 6 percent
since the first week of August. As the 30-year rate rose toward
6 percent this week, borrowers noticed.
"More people watch the rates than
they do their favorite baseball teams," says Bob Moulton,
president of Americana Mortgage, a brokerage in New York.
That goes for clients who watch the financial markets for
a living as well as neophytes, he says: "Between the
different media outlets, whether it's print or radio or Internet
or TV, there's information flowing."
One excellent source of such information is
Mortgage
Matters, Bankrate's mortgage weblog.
Moulton says his phone hasn't been ringing
this much since early last summer, when rates last went on
a sustained rise. "Volatility," he says, "seems
to create urgency."
A lot of people are inquiring about extended
rate locks because they want to wait and move after the school
year ends. They need to lock for 90 to 120 days. The fee to
lock the rate that long varies from about one-half of 1 percent
of the loan amount to 1 percent of the loan amount, depending
on the length of the lock. In lender's parlance, that's a
fee of half a point to a point. "People feel that's money
well-spent, because if rates go higher, they could recoup
that money in a couple of years," Moulton says.
Borrowers have responded to higher rates by
embracing ARMs. According to the Mortgage Bankers Association,
adjustables constituted 32.4 percent of mortgage applications
last week, compared to 30.5 percent the previous week. The
ARM share hasn't been that high since Santa's elves were working
overtime.
Borrowers are going to ARMs for a number of
reasons, says Ed Powell, chief consumer officer for LendingTree.com.
For some people, low-rate ARMs offer the only possibility
for buying the expensive houses that they want. And a lot
of borrowers buy homes knowing that they will move out (and,
they hope, up) within a few years.
"If I want to buy a home and I can't
afford it on a 30-year fixed, I'll get an adjustable rate
-- and I know I'm not going to be there more than three or
five years," goes the reasoning, according to Powell.
As for why rates rose in the first place, Powell
points out that the economic indicators (retail sales, housing
starts, employment) have shown relative strength. That means
inflation could resume.
"The Federal Reserve has been saying
they're going to be completely on the edge of any inflation
numbers, and they're going to be hawkish about raising the
federal funds rate over the remainder of the year," Powell
says, so he's not concerned about runaway prices. But as the
Fed raises short-term rates this year, ARM rates could continue
to rise.
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