We’re now refinancing borrowers who closed in October because rates are so much lower.
So, even though today’s rates are close to their highs for 2024, they’re still 5/8% to 3/4% lower than what we saw in October of last year.
In addition, rates are very close to what we quoted for most of the early 2000s (until 2008), and they’re 1.5% to 2% lower than what we quoted for most of the 1990s.
Why Adjustable-Rate Mortgage (ARM) Rates Are Still Not Competitive
Borrowers still frequently request ARMs because they have short-term time horizons and want to save as much as they can on their mortgages.
They either expect to move or sell in under 5 years, or they’re expecting a liquidity event (very common in Austin and the San Francisco Bay Area) that will enable them to pay off their mortgages.
BUT – the problem is that ARM rates are not lower than 30-year fixed rates.
We have one jumbo 7/1 ARM (fixed for 7 years) that is 1/8 lower than our 30-year fixed jumbo, but it is more difficult to qualify for, and it is only an 1/8 – so why bother?
ARM rates remain so high because the yield curve remains sharply inverted.
In other words, we have been in an unusual situation for a few years now where short-term rates are higher than long-term rates – something that usually portends a recession.
An inverted yield curve is unusual because longer term loans/notes/bonds are usually associated with more risk – so it would seem logical that lenders/bond buyers would demand higher yields.
Will ARM rates get more competitive when the yield curve un-inverts or returns to normal?
The answer is yes and no. When the yield curve returns to “normal,” short-term rates will again be much lower than long-term rates – making ARMs much more competitive.
BUT – many analysts remind us that the yield curve will likely return to normal largely as a result of the Fed cutting rates in response to recessionary or very weak economic signals.
And those same signals will likely bring fixed rates way down too. And – if fixed rates get low enough, borrowers will want them irrespective of how low ARM rates get – as we saw in 2021.
Is Crypto Cool for Mortgages?
A friend of mine recently posted this on X: Looks like #Crypto has officially made it. Lenders are updating their FHA/VA guides to allow crypto assets for down payment and closing costs. (This is an excellent account to follow in regard to mortgages btw.)
You still have to convert the crypto to dollars, so I am not sure crypto has totally “made it,” but we’re getting closer.
