ARM rates are all over the place lender to lender because they are a very small percentage of new loan originations, around 6% of total mortgage application volume, according to the Mortgage Bankers Association.
The gap between ARMs and fixed-rate loans is now really small because of the inverted yield curve.ARM rates are kind of all over the place lender to lender because they are a very small percentage of new loan originations today, around 6% of total mortgage application volume, according to the Mortgage Bankers Association.
Traditionally, adjustable-rate mortgages, or ARMs, offer lower interest rates than fixed-rate loans, because they are slightly riskier, and borrowers don't want to pay more for more risk. ARMs can carry a fixed rate for five, seven or 10 years, and most today require some principal payment as well. No matter what the length of the fixed-rate term, they are all amortized over 30 years, so the payments will be relatively comparable to fixed-rate loans.
So what's going on? First, ARM rates are all over the place lender to lender because they are a very small percentage of new loan originations today, around 6% of total mortgage application volume, according to the Mortgage Bankers Association. And that's precisely what is so interesting — that flat to inverted yield curve. The gap between ARMs and fixed-rate loans is now really small because of the inverted yield curve, which, without getting too technical, is a rare scenario where long-term interest rates suddenly fall below short-term interest rates. In the past, an inverted yield curve has signaled an impending recession.
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