November 28th, 2018 10:15 AM by Jackie A. Graves
Rising interest rates are prompting more home buyers to turn to
adjustable-rate mortgages—which come with potential financial risks. Though
these mortgages typically come with lower interest rates initially, they reset
to market rates after five or seven years, potentially shocking borrowers with
much higher costs.
percentage of borrowers with ARMs rose to 8.2 percent in October, up from 7.2
percent in September, according to Ellie Mae’s newly released Origination
Insight Report. “As interest rates continue to rise, the percentage of
adjustable-rate mortgages is increasing, as home buyers are looking to take
advantage of the best rates from their lenders,” says Jonathan Corr, president
and CEO of Ellie Mae, a cloud-based platform for the mortgage finance industry.
Freddie Mac reported last week that the 30-year fixed-rate mortgage averaged
4.81 percent compared to a 4.09 percent national average for 5-year ARMs.
Ellie Mae’s report also showed that the time to close on all
loans is on the rise: 45 days in October, up from 44 days in September. Broken
out, the time to close on a purchase loan rose to 46 days, while the time to
close on a refinance loan increased to 43 days.
Also, the report showed that FICO scores of applicants averaged
727 in October. “FICO scores remain the highest we’ve seen in 2018, indicating
that lenders are not yet loosening credit availability to attract the shrinking
refinance market,” Corr says. “We’ll continue to watch this trend into the
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