HousingWireHousingWire
Top U.S. lender United Wholesale Mortgage (UWM) will begin offering fixed interest rates for the first five years on Federal Housing Administration (FHA) and U.S. Department of Veteran Affairs (VA) adjustable-rate mortgages (ARMs).
The 5/1 option provides a fixed interest rate for the first five years, after which the rate adjusts annually based on market conditions. ARMs typically gain market share when rates are elevated, as borrowers can access lower initial rates compared to traditional fixed-rate mortgages.
As of Wednesday morning, the average 30-year conforming mortgage rate stood at 6.97%, according to HousingWire’s Mortgage Rates Center. FHA loan rates averaged 6.68%. According to industry experts, most borrowers can shave at least 50 basis points off their rate compared to a conventional fixed mortgage by choosing an ARM.
ARMs can be attractive to borrowers who anticipate interest rates will decline as they have the option to refinance or move before the adjustment period begins.
“With this product, mortgage brokers can typically offer lower initial interest rates and monthly payments compared to a fixed mortgage, giving borrowers the opportunity to save more money,” UWM explained in an announcement.
“As rates go up, ARMs become more exciting, especially with the yield curve becoming more normalized,” Mat Ishbia, UWM president and CEO, said during an earnings call in early May. “But with that being said, people still think ARMs are a four-letter word, and people are scared of ARMs.”
Ishbia added: “ARMs are interesting, but I don’t think they’re as viable or present as big of an opportunity as they did five, seven or eight years ago, from my perspective. We are prepared, we do a little bit of it, and we will probably do a little bit more, but it won’t be meaningful enough that it will hit your radar.”
The Mortgage Bankers Association (MBA) reported Wednesday that ARMs accounted for 7.5% of all mortgage applications for the week ending May 23. The typical baseline share is between 3% and 5%.
Borrowers are increasingly turning to 7/1 ARM products, according to Mike Fratantoni, the MBA’s chief economist, during the trade group’s Secondary & Capital Markets Conference in New York City this month.
