7-, 10-year ARMs are offered by more lenders

Real Estate Watch

October 26, 1997

One-year adjustable-rate mortgages may be the most popular, but according to a Freddie Mac survey, other hybrid ARMs are being offered by more lenders than ever before.

Adjustable-rate mortgages that delay the first adjustment for seven years or more have become more popular with lenders during the past year, according to the 14th annual adjustable-rate survey conducted by Freddie Mac.

According to the survey, 64 percent of the respondents are now offering a 7/1 ARM, which locks in an initial interest rate for seven years and adjusts annually thereafter. Last year 55 percent of the lenders surveyed were offering that product.

Also gaining in popularity was the 10-year ARM, which was offered by 52 percent of the lenders this year as opposed to 45 percent in 1996.

"One-year ARMs have low rates, but fluctuate," said Robert Van Order, chief economist for Freddie Mac. "Longer-term ARMs are a compromise that require locking in for a longer period than one year, but they give the borrower a lower rate than a fixed-rate mortgage. These longer-term ARMs are popular with borrowers expecting to move before the rate is scheduled to adjust."

However, with fixed rates nearing 7.5 percent, ARMs accounted for only 20 percent of all mortgage financing, according to the Federal Housing Finance Board.

According to Freddie Mac, the average lender in September was charging an initial 5.6 percent interest rate during the first year of a one-year ARM.

Pub Date: 10/26/97

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