Flatter Yield Curve, Longer-Term Fixed Rate Lock

January 16, 2005, Wall Street Journal — In recent years, many borrowers have embraced adjustable-rate mortgages as a way to lower their monthly payments. They also have flocked to exotic loan products, such as mortgages with 1% teaser rates, so they could buy a more expensive home or tap their equity without boosting their monthly payments. But last year’s top loan choice might not be the right one for 2006. One big reason: The gap between short-term and long-term rates has narrowed. This flatter yield curve means that borrowers aren’t saving as much as they once did by taking on the interest-rate risk that comes with an adjustable-rate mortgage, or ARM. At the same time, mortgages of all types have gotten more expensive. “The bloom is off the ARM market,” says Doug Duncan, chief economist of the Mortgage Bankers Association, a trade group in Washington. More borrowers are now taking out fixed-rate loans, he says, or ARMs with longer fixed periods.
Home Rundown [Wall Street Journal]