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> Unlike rates on credit cards or other types of loans, mortgage rates move early and dramatically in anticipation of what the market expects Interesting piece

> Unlike rates on credit cards or other types of loans, mortgage rates move early and dramatically in anticipation of what the market expects Interesting piece of information for tracking economic movements. I wonder what the ratio is on adjustable rate mortgages vs. fixed. If there are a lot of ARM out there then there might be potential for a bubble popping where people can't afford the mortgage and fixed rates are also higher where a re-fi won't help.

kipchak 5y ago
They were at 10% January 2022, up from 4% Jan 2021. [1]https://www.cbsnews.com/news/mortgage-rates-4-percent-adjustable-rate-mortgages-housing/ https://www.cbsnews.com/news/mortgage-rates-4-percent-adjust...
next_xibalba 5y ago
According to [1], ARMs have multiple caps on their interest rates. They cannot be freely floated along with prevailing interest rates. Rather, they have a cap on how much the rate can go up at each adjustment period, and a cap on the maximum total increase over the lifetime of the loan. So if you had an ARM at an initial rate of 3%, you're probably gonna hit 5% very soon. But even if inflation hits early 1980s levels and the Fed acts similarly by mercilessly raising rates, ARM borrowers won't see their rates go anywhere near >20%. Additionally, lending standards over the last decade were nowhere near as loose as before the financial crisis. Though apparently they were beginning to ease in Q3 and Q4 of last year. [2] All this to say, I'm sure you're right, borrowers at the margins of lending standards will have a much harder time, and we'll see an increase in foreclosures. But it shouldn't the tsunami that we saw in '06-'09. One does wonder though, with the trend of increasing economic headwinds (inflation, ongoing supply chain bottlenecks, etc.), how close we are to a recession. [1] https://www.bankrate.com/mortgages/federal-reserve-decision-heloc-arms/ https://www.bankrate.com/mortgages/federal-reserve-decision-... [2] https://www.pymnts.com/loans/2021/banks-loosen-lending-standards-in-race-to-loan-money/ https://www.pymnts.com/loans/2021/banks-loosen-lending-stand...

kipchak 5y ago

They were at 10% January 2022, up from 4% Jan 2021. [1]https://www.cbsnews.com/news/mortgage-rates-4-percent-adjustable-rate-mortgages-housing/ https://www.cbsnews.com/news/mortgage-rates-4-percent-adjust...

next_xibalba 5y ago

According to [1], ARMs have multiple caps on their interest rates. They cannot be freely floated along with prevailing interest rates. Rather, they have a cap on how much the rate can go up at each adjustment period, and a cap on the maximum total increase over the lifetime of the loan. So if you had an ARM at an initial rate of 3%, you're probably gonna hit 5% very soon. But even if inflation hits early 1980s levels and the Fed acts similarly by mercilessly raising rates, ARM borrowers won't see their rates go anywhere near >20%. Additionally, lending standards over the last decade were nowhere near as loose as before the financial crisis. Though apparently they were beginning to ease in Q3 and Q4 of last year. [2] All this to say, I'm sure you're right, borrowers at the margins of lending standards will have a much harder time, and we'll see an increase in foreclosures. But it shouldn't the tsunami that we saw in '06-'09. One does wonder though, with the trend of increasing economic headwinds (inflation, ongoing supply chain bottlenecks, etc.), how close we are to a recession. [1] https://www.bankrate.com/mortgages/federal-reserve-decision-heloc-arms/ https://www.bankrate.com/mortgages/federal-reserve-decision-... [2] https://www.pymnts.com/loans/2021/banks-loosen-lending-standards-in-race-to-loan-money/ https://www.pymnts.com/loans/2021/banks-loosen-lending-stand...