Industry News

Survey shows ARM loans losing their advantage

Initial rate discount has 'virtually disappeared'

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Adjustable-rate mortgages accounted for a smaller share of prime loans in 2007 as their interest-rate advantage over fixed-rate loans shrank and lenders offered smaller discounts on introductory rates. Those are among the findings of Freddie Mac's annual survey of prime adjustable-rate mortgage (ARM) loans, which found 3/1 and 5/1 hybrid ARMs were the most widely available ARM loan. The survey, based on data collected in the third week of December, found little difference between the initial rate discount on hybrid ARM loans and the fully indexed rate after the introductory rate expires. While fully indexed interest rates fell to their lowest levels in three years in 2007, starting rates were close to or above rates of a year earlier. "A year ago, the initial rate discount on the popular 3/1 and 5/1 hybrid products was about 1.8 percentage points," said Freddie Mac Chief Economist Frank Nothaft in a statement. "In our latest survey, the rate discount had virtually disapp...