ARM or Fixed-Rate? Tougher Call Now
For most of this year, nine out of ten homeowners with Adjustable Rate Mortgages (ARMs) facing their first adjustment opted to swap into a fixed rate loan. This was a reflection of the wide spread between what the post-adjustment rate would have been (most likely more than 7.5 percent) and the rate on a 30-year…
For most of this year, nine out of ten homeowners with Adjustable Rate Mortgages (ARMs) facing their first adjustment opted to swap into a fixed rate loan. This was a reflection of the wide spread between what the post-adjustment rate would have been (most likely more than 7.5 percent) and the rate on a 30-year fixed loan (around 6.25 percent). As the bond market has backed up in recent weeks, however, the fixed rate mortgage isn’t looking quite as appetizing to some at 6.75 percent. If we sit down rationally, we’ll see the rates are historically very, very low still, said Melissa Cohn, Manhattan Mortgage CEO. But we’re a greedy crowd. In general, according to Cohn, those buying and refinancing in the hottest markets more likely to roll the dice with an ARM than their counterparts in more lethargic markets. Have any readers had to struggle with the ARM vs. fixed decision in the last couple of weeks?
Tough Choice: ARM or Fixed-Rate? [NY Times]
as I posted that $tnx is testing 50.98, the low of the day. meanwhile, gold is is up. homebuilding stocks are mostly up. I wouldn’t be surprised to see the 30 yr fixed pull back another point here to 6.375 or maybe even 6.25 before another attempt to move up. keep in mind that the fed meets next week, and traders will try to run stops on those who are short the long bond to get them to cover.
technical analysis for equities => guesswork
technical analysis for interest rates => guesswork squared
Raphael,
You sound like you know what you are talking about.
But please explain in English for those of us who are not bond experts.
What does this imply for those on this thread choosing between, say, a 30-year fixed vs. 5/1 ARM in the next year or so?
And why?
here’s the chart marked up a bit:
http://stockcharts.com/h-sc/ui?s=$TNX&p=D&yr=1&mn=0&dy=0&id=p13771107604&a=109721760
the chart shows a powerful move breaking out of a base with resistance at around 5 or so. it doesn’t matter what caused the move – whether it’s cpi #s, last month’s strong housing #s, maybe china rotating into other issues than the 10 yr treasury, hedge funds unwinding positions, a chain reaction in subprime loan pools raising cash….
the chart shows a series of gaps in a somewhat parabolic move – any good action often begets some sort of reaction, maybe 35%, maybe 50%, maybe a move to test one or more of those gaps. prices move as a result of supply and demand, and sooner or later the last buyer (or seller in this case, of bonds) is in (or out) for the time being.
there are no rules here, but most things that can be charted tend to follow patterns, and the best thing is to try to look at the chart and see what they are doing now, now that the media is saying about what already happened.
so, my reading of this is that the rate shown on the chart, that of the ten yr treasury, has temporarily peaked. I would make no prediction whatsoever as to what happens next, but from watching it trade it would appear that the bond is getting bought over the past few days, and not sold.
that said, the banks may be slow to react. most of them lowered by 1/8 of a point today, but the buy down schedules are not particularly borrower friendly. this is what people mean by tighter lending.
it isn’t going to make it cheaper to buy, at any rate.
I’m 2.5 yrs into my 5 yr ARM. I am relating to 1159 and 1057 (except I’m not paranoid). I wasn’t sure if I was going to sell in that timeframe but now I will try and hold on to this house when I move.
Its probably naive of me to assume this, but wouldn’t my current lender want to restructure this rather than lose the loan to someone else when i refi?
(1057, how did they lie?)
As long as we’re talking about it, should I do it now?
9:23 — Even with widening spreads between 30yr FRM and 5/1 ARM, 70 bps seems very large. At that gap, seems like a no brainer to go Floating
I’m in the fourth year of an ARM fixed for five years at 4.875%, then it will increase (I think) another two points. When I took it, I thought I would sell before it started going adjustable, but now I’m staying put. Due to income irregularity, I’m going to have trouble qualifying for the best fixed rate. Any suggestions?
Raphael 11:36, can you please explain your logic behind this statement?
“a look at this chart implies the rate on the tnx could easily pull back to 5.00 on this move”