You might remember that adjustable rate mortgages played a big role in the housing crash of 2008. They’ve been out of favor ever since. But with prices and interest rates now rising rapidly, they’re starting to make a comeback. A local lender says they might be the right choice for some, but buyer beware.
LOOK. WE’LL SHOW YOU THE CHANCE FOR STORMS FOR SUNDAY AS WELL, GERALD. ALL RIGHT, MIKE, THANK YOU. >> CHANGING MORTGAGE RATES HELPED SINK THE HOUSING MARKET BACK IN 2008. NOW THEY’RE MAKING A COMEBACK DEMAND FOR ADJUSTABLE RATE LOANS HAS DOUBLED OVER THE PAST 3 MONTHS AND THEIR ACCOUNTING FOR A RISING SHARE OF MORTGAGE DEBT. WRAL CAPITOL BUREAU CHIEF LAURA LESLIE, TALK TO AN EXPERT ABOUT WHETHER YOU SHOULD BE WORRIED OR IF THESE LOANS COULD WORK IN YOUR FAVOR OF LAURA. >> MICHELLE, YOU MIGHT REMEMBER THAT ADJUSTABLE RATE MORTGAGES PLAYED A BIG ROLE IN THE HOUSING CRASH OF 2008. THEY’VE BEEN OUT OF FAVOR EVER SINCE. BUT WITH PRICES AND INTEREST RATES NOW RISING RAPIDLY, THEY’RE STARTING TO MAKE A COMEBACK. A LOCAL LENDER SAYS THEY MIGHT BE THE RIGHT CHOICE FOR SOME. BUT BUYER BEWARE. ADJUSTABLE RATE MORTGAGES OFFER LOWER, BEGINNING RATES THAN REGULAR FIXED MORTGAGES. >> THAT CAN REDUCE YOUR MONTHLY PAYMENT BY HUNDREDS OF DOLLARS WITH PRICES AND INTEREST RATES. BOTH ON THE RISE, LOCAL MORTGAGE LENDER, DAN WOODARD, YOU CAN SEE THE APPEAL PEOPLE THAT. >> 2 MONTHS AGO TO QUALIFY FOR A HALF-MILLION-DOLLAR MORTGAGE, MAYBE CAN ONLY QUALIFY FOR 450,000 OR MAYBE EVEN LESS TO HELP. SO THEY’RE NOT GETTING THE HOUSE THEY WANT OR MIGHT BE A WAY TO GET YOU IS THE PRODUCT FOR CERTAIN BUYERS. HE SAYS AN A R M CAN MAKE SENSE AND SAVE A LITTLE MONEY. IF YOU, FOR EXAMPLE, MOVE A LOT WITH OR SO MAYBE YOU’RE ONLY GOING TO BE A LOT OF PATIENTS FOR 2 OR 3 YEARS. AND YOU’RE VERY TOUGH ABOUT THAT. THAT’S THE CASE. >> BUT FOR AVERAGE BUYERS, RAMS CARRY A LOT OF RISK AFTER THE INITIAL PERIOD AT THE LOWER RATES. TYPICALLY 5 TO 7 YEARS, THE INTEREST RATE CAN MORE THAN DOUBLE. SO IF YOU TAKE IT OR MONTHS FOR WHICH IT. >> THEY CAN GO UP 5% OR 9%. THAT’S GOING TO BE IT. BIG STICKER SHOCK TO YOUR PAYING MANY BORROWERS COUNT ON REFINANCING THE LOAN DURING THE INITIAL PERIOD. >> BUT IF INTEREST RATES CONTINUE TO RISE AS EXPECTED REFINANCING MAY NOT BE AN AFFORDABLE OPTION, EITHER. AND WOODARD SAYS RAMS HAVE PREPAYMENT PENALTIES. THEY CAN BE COMPLICATED LOANS WITH A LOT OF FINE PRINT. BUT IF YOU DON’T HAVE A TRUSTED, WE NEED TO ADVISE OR TO HELP YOU FOR YOU. >> YOU KNOW, AND YOU CAN REALLY GET YOURSELF INTO A TIGHT SPOT. >> NOW, WHAT I DID SAY THAT ALL ARMS AND ALL MORTGAGES, IN FACT, ARE MUCH MORE TIGHTLY REGULATED NOW THAN THEY WERE BEFORE THE 2008 CRASH. SO IN SOME WAYS, ERRANDS MAY BE SAFER THAN IT USED TO BE. BUT THE BASIC RESCUE SAYS IS STILL THE
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