Bad Credit Online Magazine - Daily News and Advice on Credit, Debt and Mortgage : Large drop in demand for Option Arms as interest rates rise

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December 03, 2005

Large drop in demand for Option Arms as interest rates rise

Option ARM which has kept home sales and mortgage refinance going lost its allure as interest rates raised. Demand for Option adjustable-rate mortgages has dropped 25% in recent months, according to estimates by UBS AG. For those who missed this great mortgage product, Option ARM is deceptively cheap mortgage, which lets you choose from 4 payment options every month. I am not going to go into details, but you can get the idea here. Option ARMs also offer teaser rates of as low as .95 percent. The bottom line is, it is a great product that makes some otherwise unaffordable homes quite affordable, but the mortgagor must understand fully all the implications. One of them is it can lead to a rising loan balance due to a negative amortization.

A year ago, Option ARMs brought Washington Mutual which introduced it among the very first, roughly 40 percent of total mortgage volume. It is down to 29 percent in the third quarter. IndyMac Bancorp saw option ARMs volume fell to 31 percent in the third quarter from 39 percent the previous quarter.

Posted in Mortgages at December 3, 2005 12:25 AM

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