A Trendy Mortgage Falls From Favor
(November 29, 2005) -- Demand for option adjustable-rate mortgages have declined 25 percent in recent months, according to estimates by UBS AG, as short-term interest rates rise and regulators express growing concern over the risks associated with these loans.
As recently as this summer, option ARMs accounted for more than 30 percent of jumbo mortgages, global financial firm UBS says. Many borrowers flocked to option ARMs due to their attractive introductory rates—some as low as 1 percent—that are used to establish the minimum payment for the first year.
However, the "teaser" rate is in effect for just a short period of time and is then followed by a jump to above 5 percent or 6 percent and on up as short-term rates creep higher.
As option ARMs fall out of favor, fixed-rate loans are becoming more popular again. Some analysts now say this is likely the end of the era in which creative new mortgage products have made it easier for a wider range of borrowers to afford increasingly pricier residences.
Source: Wall Street Journal (11/29/05); Simon, Ruth
Chris Dowell
www.DowellTaggart.com
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