What to Make of Short-Term Changes in Mortgage Rates
CNBC notes that the higher fixed rate mortgages caused a “run” on ARM loans. That demand made ARM application numbers rise.
Adjustable Rate Mortgages vs. Fixed Rate Mortgages
Adjustable rate mortgages offer lower introductory rates, with seasonal adjustments after the intro rate expires.
The lower rate makes it less expensive to get into a home and stay there until the adjustments begin. Smart borrowers apply for ARM loans with an exit strategy to cope with the higher rates once they get close to taking effect.
CNBC notes that in recent times, the difference in mortgage rates between fixed and adjustable rate mortgages has been narrower than usual. But in the second week of October, that changed. As a result, ARM loan applications increased by some 15%, according to published sources.
Do the Short-Term Changes Matter?
What should borrowers make of those changes? Does the lower ARM rate indicate something more permanent? Fixed-rate mortgage loan rates also fell after the spike reported above. Does that mean anything significant?
Watching rates spike and dip is a typical long-tail activity for mortgage professionals and financial pundits. But the changes themselves aren’t really the indicator as to where the market is going. Instead, it’s the consistency of the numbers over a week, a month, a quarter, six months, or longer.
An individual week of home loan interest rate gains or losses might not make or break your decision to commit to an FHA mortgage, a One-Time Close construction loan, or an FHA cash-out refinance loan.
But a full month of sustained recovery may change your mind. When the numbers are consistently higher or lower for an extended period of time, that’s when you know it’s safer to consider making a big investment like a mortgage loan.
Don’t trust the first big lower rate moment you see. You’ll want to see rates staying in a specific range for a longer period of time to make a more informed decision about when to commit.
When nobody can predict what happens next, you’re still in a period of potential volatility where interest rates are concerned.
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