HSH.com discusses ARMs and serial refinancers on CNBCby Tim Manni
HSH.com VP and resident expert Keith Gumbinger visited CNBC yesterday to discuss the role adjustable-rate mortgages are playing in “serial refinancing.”
Many Americans are taking advantage of the ongoing low-rate environment by refinancing multiple times. This, of course, only tends to happen when mortgage rates are falling, and keep falling.
Yet, what has made this phenomenon of serial refinancing even more pronounced is that more homeowners are seeking to refinance into adjustable-rate products which are currently hovering around 3 percent.
ARMs are neither evil nor toxic
ARMs got a bad rap following the housing crisis, but Gumbinger said it’s not the product’s fault. Far too many borrowers who were ill-suited to handle the risks associated with adjustable products were granted those loans, he explained.
These days, ARMs make up about 7 percent of the lending market, when just a few years ago, that number was as high as nearly “3o, 40, 50 percent of the market.”
ARMs have been a part of the mortgage market for decades, and so it’s ”just a matter of the proper application of the product,” said Gumbinger.
There’s a way to afford all those refis
To eliminate the financial toll of paying the closing costs of more than one refinance, loan professionals suggest that borrowers take a slightly-above-market interest rate to help negate the costs at closing.
“You can refinance with lower closing costs by opting for a slightly-above-market rate,” said Craig Strent of Apex Home Loans. “[It's] very easy, and that’s a no-brainer. You lower your rate. The cost [is] generally [zero] on something like that, and you’re saving money right away so there are several…options [for] people who are going to be in their home a long time and options for people who think they will only be there a few more years.”
What about the risk?
There will always be risk associated with an adjustable-rate mortgage because you can’t guarantee what your loan payment will be down the road. However, borrowers who analyze their timeline, those who realize they may only be in their current property for a set number of years, can really benefit from these rock-bottom rates.
If your plans change, if you decide to stay in your home longer than you originally thought, you can always refi out of your ARM to a fixed-rate product when the time calls for it.
Remember, if you can bank the savings these ARM products can provide, you’ll be much better suited to handle and upward shift in your interest rate, should that happen.
For more on adjustable-rate mortgages, be sure to read: