ARMs usage dips as interest-rate spread narrows

Real Estate Watch

January 28, 2001

The public's love affair with the adjustable-rate mortgage appears on the rocks as the spread between ARMs and a fixed-rate mortgage continue to narrow.

The interest rate difference between the one-year adjustable-rate mortgage vs. the fixed-rate variety fell to a record low 0.37 percentage points in 2000, a consequence of the government's attempts last year to control inflation, Freddie Mac said in its 17th annual ARM survey.

Consequently, the percentage of borrowers applying for an ARM fell to 16 percent in November - the latest numbers available - compared with 29 percent in November 1999.

The narrow spread meant that long-term debt had become less expensive than shorter-term debt, Freddie Mac said. Since May, when 30-year mortgages peaked at 8.64 percent for the year, rates have fallen under 7 percent.

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