If they follow the same path home loan applicants across the nation are choosing, most St. Cloud mortgage applicants will continue passing up adjustable-rate offerings. As last week’s Real Estate News analysis points out, there are multiple reasons for that phenomenon.
It’s been a decade since the financial meltdown had everyone rethinking the nation’s (and their own) disposition toward the way mortgage products were viewed. The headline may have been worth a chuckle (“ARMs Don’t Have Legs”) but the history that produced it was anything but hilarious—especially for St. Cloud adjustable-rate mortgage borrowers who fared poorly in the financial meltdown.
Leading up to the crisis, the Mortgage Bankers Association traced a steady gain in popularity for the adjustables. From 1998-2008, the average share of adjustable-rate loans was 20%. With one in five home loan borrowers choosing the mortgages with their featured low initial interest rates, new home buyers and refinance applicants could pencil out budgets that were suddenly workable for properties they wouldn’t otherwise be able to afford—workable, that is, until the “adjustable” part came due. Many buyers made the assumption that, even if their own future fortunes didn’t grow at a pace that would allow higher monthly payments, they could always “cash out” on their investment, since real estate values were sure to grow as they had for years.
The double whammy of the mortgage meltdown and its triggering of the real estate slide put thousands of adjustable-rate mortgage holders in an impossible position, resulting in too many foreclosures—which in turn triggered a feedback-loop of even lower real estate valuations that made refinancing all but impossible.
When the dust cleared, mortgage industry regulators and the lenders they governed decided to make qualifying for adjustable home loans much harder—but they weren’t alone. Borrowers were now widely in agreement. By the end of 2008, no longer were one in five borrowers signing up for the variable interest mortgage offerings. Now it was more like 1%.
Flash forward to today, and, surprisingly, the adjustable-rate loan market is still being widely shunned. Borrowers are being offered fixed rate mortgage rates that are, as Real Estate News puts it, “stuck near all-time lows.” That being the case, most borrowers seem to be demonstrating that accepting the risk of an adjustable remains unappealing—all the more so as the Federal Reserve continues nudging rates upward. That doesn’t mean that there aren’t some scenarios that legitimately justify an adjustable—just that they are relatively scarce.
The fact that even now, in mid-summer 2018, St. Cloud mortgage rates remain near the lower end of historical averages is good news for both buyers and sellers. In other words, it remains a great market—and ample reason to give me a call!
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