October 16, 2023
In October 2023, fixed-rate mortgage rates spiked to what CNBC called “the highest level” since the year 2000. But adjustable rate mortgages did not follow suit. Instead, ARM loan rates fell.
You might be wondering why.
CNBC reported the higher fixed rate mortgages caused more people to explore ARM loan options. Increased demand seems to have made ARM applications go up. and demand fell from an average of 6.49% down to an estimated 6.33%.
Adjustable Rate Mortgages, Fixed Rate Mortgages
Adjustable rate mortgages offer lower introductory rates. Once the intro rate expires these loans feature rate adjustment periods.
The lower rate makes it potentially cheaper to buy a home. At least until the rate adjustments begin. Future-minded borrowers should consider applying for ARM loans with an exit strategy to deal with the higher mortgage loan rates once the adjustments start.
CNBC notes the difference in mortgage rates (fixed and adjustable rate mortgage differences) has been smaller in recent times. But as headlines during the second week of October indicate, that situation changed.
ARM loan applications increased by some 15%, according to published sources including CNBC.
Short-Term Changes
What do those changes mean? Should a borrower interpret a lower ARM rate to mean something more permanent might be on the horizon?
Fixed-rate mortgage loan rates also fell after the spike we mention above. But does the fixed rate mortgage’s falling interest rate (however temporary) mean anything?
Watching the rise and fall of mortgage loan rates is something mortgage professionals and financial pundits do regularly. Do those changes act as an indicator of where the market is going? Not on an individual basis.
Instead, it’s the consistency of the numbers over a week, a month, or longer.
A single week of home loan interest rate reductions (or gains) may help you to make a decision to commit to an FHA mortgage or even an FHA cash out refinance loan.
A full month of mortgage rate recovery may be more convincing. Wait until you see numbers that are consistently higher or lower. Those conditions are more likely to be safer when it is time to consider making a significant investment like a mortgage loan.
Don’t trust the first big lower rate moment that comes along. Instead, wait until rates seem to remain in a given range for a more extended period of time. When no one is sure what happens next chances are good conditions are still in a condition of potential volatility. Consistency is key.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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