This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Adjustable-Rate Mortgages Hit New Low

NEW YORK ( RateWatch) -- Loan rates keep falling, and consumers who have long spurned adjustable-rate mortgages may want to take a second look.

The average rate for a five-year adjustable-rate mortgage hit a low of 3.41% at the end of June. That's the lowest mark that rate has hit since RateWatch began tracking the Credit Power Index in January 2007.

The Credit Power Index assesses the interest rate climate for consumers by tracking deposit and consumer loan product rates, using the methodology found here. The overall index -- which accounts for certificates of deposit at four terms as well as personal unsecured loans, home equity loans, new auto loans and adjustable-rate mortgages -- fell for the sixth straight month as rates continue to slowly improve for consumers.

But the real story was the five-year ARM component of the index. The national average rate of 3.41% is a basis point lower than the low set back in October; the rate had fluctuated in the intervening six months before settling at its new low at the end of last month. While most would-be homebuyers are well aware mortgage rates have hit rock bottom lows along with the home prices, the low point for ARMs should serve as a reminder that even lower monthly payments are possible for those willing to assume the risk of a higher rate five years down the road.

Of course, this milestone comes after ARM rates have dropped steadily for years. So have these plummeting rates been enticing consumers to get on board?

The fact rates continue to drop -- the average has dropped even further this week, to 3.246% -- suggests demand has stayed low. Still, there are signs of increased activity. The Mortgage Bankers Association recorded a week-to-week spike of 13% in mid-June mortgage applications, an increase the organization attributed to falling rates. And according to Inside Mortgage Finance, ARMs have become particularly attractive as of late; in the first quarter of 2011, they accounted for 12% of originations, the highest share since the second quarter of 2008.

But some say that thinking of the mortgage market in simple terms of decreasing rates and increasing demand ignores a key reality: Despite the low rates, banks have greatly raised their standards for home loan qualification.

"The common theme we're hearing is that consumers can't get a loan, even if they're putting 70% down," says economist Lance Roberts, CEO of Houston-based investment management firm StreetTalk Advisors. "And many homeowners are underwater and can't move, and that lack of mobility is tying up the market."

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,164.95 -251.90 -1.45%
S&P 500 1,994.99 -26.26 -1.30%
NASDAQ 4,635.24 -48.1670 -1.03%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs