Industry News

Survey: ARMs now offer less interest-payment savings

Higher interest rates diminish savings of adjustable home loans

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Consumers are getting smaller interest-payment savings on adjustable-rate mortgages compared to fixed-rate loans now that the Federal Reserve has raised short-term interest rates, a study of such loans has found. The Freddie Mac 22nd annual adjustable-rate mortgage survey, released today, also found that greater lender discounts for introductory ARM rates are now in effect and hybrid ARMs are increasingly popular compared to one-year adjustables. "The Federal Reserve ratcheted up short-term interest rates at each of their meetings in 2005, raising their federal funds target from 2.25 percent to 4.25 percent," said Frank Nothaft, vice president and chief economist for mortgage giant Freddie Mac. This contributed to a rise in short-term interest rates relative to long-term rates, the economist said. "This phenomenon is reflected in mortgage pricing as well. First-year rates on 1-year ARMs rose a full percentage point over the year ... while rates on 30-year fixed-rate loans were up abou...