ARM Loans Could Be a Viable Option, as Mortgage Applications Hit 25-Year Low — RISMedia

Mortgage applications continued their decline last week, hitting their lowest level of activity in 25 years, according to the Mortgage Bankers Association (MBA). This week new loan activity slid 4.5% from one week earlier, according to MBA’s latest Weekly Mortgage Applications Survey for the week ending October 14, 2022.

More key findings:

  • The Market Composite Index, a measure of mortgage loan application volume, decreased 4.5% on a seasonally adjusted basis from one week earlier.
  • On an unadjusted basis, the Index decreased 4% compared with the previous week.
  • The Refinance Index decreased 7% from the previous week and was 86% lower than the same week one year ago.
  • The seasonally adjusted Purchase Index decreased 4% from one week earlier.
  • The unadjusted Purchase Index decreased 3% compared with the previous week and was 38% lower than the same week one year ago.
  • The refinance share of mortgage activity decreased to 28.3% of total applications from 29.0% the previous week.
  • The adjustable-rate mortgage (ARM) share of activity increased to 12.8% of total applications.
  • The FHA share of total applications increased to 13.6% from 13.5% the week prior.
  • The VA share of total applications decreased to 10.7% from 10.9% the week prior.
  • The USDA share of total applications remained unchanged at 0.5% from the week prior.
  • The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 6.94% from 6.81%, with points decreasing to 0.95 from 0.97 (including the origination fee) for 80% loan-to-value ratio (LTV) loans. The effective rate increased from last week.
  • The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $647,200) increased to 6.31% from 6.25%, with points increasing to 0.67 from 0.61 (including the origination fee) for 80% LTV loans. The effective rate increased from last week.
  • The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 6.63% from 6.61%, with points decreasing to 1.60 from 1.71 (including the origination fee) for 80% LTV loans. The effective rate decreased from last week.
  • The average contract interest rate for 15-year fixed-rate mortgages decreased to 6.09% from 6.12%, with points decreasing to 1.18 from 1.30 (including the origination fee) for 80% LTV loans. The effective rate decreased from last week.
  • The average contract interest rate for 5/1 ARMs increased to 5.65% from 5.56%, with points remaining at 0.90 (including the origination fee) for 80% LTV loans. The effective rate increased from last week.

The takeaway:

“Mortgage applications are now into their fourth month of declines, dropping to the lowest level since 1997, as the 30-year fixed mortgage rate hit 6.94%–the highest level since 2002,” said Joel Kan, MBA’s vice president and deputy chief economist. “The speed and level to which rates have climbed this year have greatly reduced refinance activity and exacerbated existing affordability challenges in the purchase market. Residential housing activity ranging from housing starts to home sales have been on downward trends coinciding with the rise in rates. The current 30-year fixed rate is now well over three percentage points higher than a year ago, and both purchase and refinance applications were down 38% and 86% over the year, respectively.”

Added Kan: “With rates at these high levels, the ARM share rose to 12.8% of all applications, which was the highest share since March 2008. ARM loans continue to remain a viable option for borrowers who are still trying to find ways to reduce their monthly payments.”



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