| Peter Boutell, Lending a Hand: Pros and cons of popular Pay Option ARM
The most recent generation of adjustable rate mortgages ARM is attracting a lot of attention and it is not all positive. ARMs became popular when the interest rates on the old fashioned 30-year fixed-rate mortgages escalated beyond affordability in the early 1980s. Lenders could offer more affordable payments for home buyers if they did not have to guarantee the interest rates for 30 years. ARMs soon became available with interest rates that could change every month or every six months or every year or every three years, etc. The rates changed based on what the economy was doing. In the early 1980s the prime rate hit 21.5 percent and 30-year fixed-rate mortgages climbed to 14 percent. The advent of ARMs relieved the lenders of the risk of rising rates in the future and placed it squarely on the shoulders of the borrower.
Fixed rates return to reverse mortgages
Many older homeowners prefer reliable, dependable mortgage interest rates. It helps them plan their monthly financial calendars, especially when they are battling the challenges of paying for health care on fixed incomes. Fixed-rate mortgages have been absent from the reverse-mortgage scene for more than decade, as lenders relied primarily on adjustable-rate mortgages insured by the U.S. Department of Housing and Urban Development. These mortgages, known as Home Equity Conversion Mortgages (HECMs), account for nearly 85 percent of the reverse market. BNY Mortgage, which recently announced it would trim the interest rate charged on the adjustable-rate HECM, introduced two fixed-rate reverse-mortgage products on March 5. The first, called the New Generation HECM, is similar to the current FHA/VA rate and hovers near 6.5 percent, not including the mandatory mortgage insurance premium.
Rate reprieve primes housing
AN interest rate reprieve and a race to offload property ahead of new superannuation laws being introduced has given fresh hope to home owners and buyers. The Reserve Bank's decision to leave rates on hold at 6.25 per cent should keep variable rate mortgages around 7.5 per cent while the average fixed-rate loan should continue to hover around 7.3 per cent and 7.5 per cent, depending on the length of the term, according to mortgage broker Mortgage Choice. But there may also be opportunities for those trying to break into the housing market, with home owners rushing to sell their properties to cash in on the new superannuation rules. Under the changes, investors are allowed to make one-off undeducted contributions to their super funds of up to $1 million until July 1.
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