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Want a lower mortgage rate? Borrow bigger (or gamble on an ARM)

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Mortgage rates across the board are at a 15-year high, with traditional 30-year fixed rates hitting an average of 6.7% last week, according to Freddie Mac’s weekly rate report. However, the current mortgage environment has created some unusual dynamics. One of them is the interest rate offered on large loans.

Jumbo loans up to $970,800 in the DC region currently have average interest rates that are lower than those of matching loans. One of the reasons is that the stock market is currently doing very poorly.

“The reason the rates for these jumbo commodities are lower than the conforming rate is because there is investor demand. It is a market that seems to exist. Rockville-based listing service Bright MLS.

Another caveat in the current high interest rate environment is how aggressively banks are competing for interest rates.

Refinancing decreased from about two-thirds to about one-third of all mortgage applications due to fewer buyers and significantly lower refinancing activity for lenders.

The National Association of Realtors said the difference in interest rates offered by different lenders on the same loan product was the largest in five years, demonstrating the importance of comparing rates for borrowers. said there is.

Interest rates on variable rate mortgages are also rising. Although the percentage of loan products chosen by borrowers is still small, the percentage is increasing. This is not the same reason ARM became popular in his early and mid-2000s.

“Fluid-rate mortgages were once more common among borrowers with lower credit ratings who didn’t qualify for traditional 30-year loans. The gap has widened to its largest since 2013,” Sturtevant said.

A variable rate mortgage can be a ticking time bomb. However, in the current interest rate environment they may be a good bet.

The most common 5-year variable rate mortgages underwritten by ARM lenders have an interest rate (currently lower than fixed interest rates). .

It would be an extraordinary win if interest rates were to fall from their current levels in a few years.

“At the end of the five-year term, there is an opportunity to reset to a new rate. But there is also an opportunity to refinance. We can,” says Sturtevant.

Variable rate mortgages may also start rising after the first five years if interest rates generally rise.

ARM has some built-in protections, such as a limit that can increase the rate on each reset, but it varies.

Sturtevant said the most important thing consumers need to know about ARM is not the initial rate, but the fine print on how much and how often that rate can be reset.

One of the least risky groups of buyers for a variable rate mortgage is people who don’t expect to stay in the home longer than the initial term of the mortgage.

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