Mortgage rates have hit a six-month record. The 30 year fixed is at its highest rate since the week of Thanksgiving, when the benchmark rate averaged 5.97 percent.
Higher rates have reduced the number of homeowners who find it worthwhile to apply to refinance their mortgages. According to the Mortgage Bankers Association, or MBA, refinances made up 59.4 percent of mortgage applications last week, the lowest since November.
This is unfortunate for people who want to refinance under the Obama administration’s Making Home Affordable Plan but were forced to wait because they have loans with mortgage insurance. Lenders are waiting for the second phase of this program to be released in order to refinance the loans with mortgage insurance.
Another solution would be to look at adjustable-rate mortgages; most considered would be the 5/1 fixed period ARM, in which the initial rate is fixed for five years and then is adjusted annually thereafter.
A few months ago, only about 1 percent of mortgage applications were ARMs. Last week, it was 3.4 percent, according to MBA.
The 5/1 ARMs are a viable option for people who make sizable down payments or have plenty of equity and who expect to sell within five or six years and could handle a rate increase five years from now.
The monthly savings can be substantial for a big loan. Take someone borrowing $350,000. On a 30-year, fixed-rate loan at 6 percent, monthly principal and interest would be $2,098.43. On a 5/1 ARM at 5.5 percent, the monthly principal and interest would be $1,987.26. That’s monthly savings of $111.
