Adjustable vs Fixed Rate Mortgages

Interest rates have been at historic lows since last year and all my clients have opted for fixed rate mortgages for their Palos Verdes homes.  According to a recent Los Angeles Times article by Kenneth R. Harney, adjustable rate mortgages are becoming more popular.  “Adjustables accounted for just 3% of new home loans in early 2009 but are projected to be picked by nearly 1 out of 10 borrowers in 2011.”

I thought that was a surprising statistic so I called a local lender for his input.  He had not read the article but confirmed that last year he had done more adjustable rate mortgages and the trend was continuing this year.  When I asked why, he told me that certain buyers who are tight with their loan qualification ratios are opting for adjustable rates to get loan approval as the lower adjustable rates net lower monthly mortgage payments for the first five years.  However, the majority of his loans continue to be fixed rate.

To read the LA Times article, click here.

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