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Adjustable-Rate Mortgages Return with a More Conservative Look

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By Jeff Collins

Borrowers realized, however, they still could get low monthly payments with ARMs, since initial rates on those loans are 1 percentage point or more lower.

“People got spoiled with (30-year fixed) rates at 3 1/2 percent,” said Alan Renteria, a co-founder of Citizens Direct Home Loans in Yorba Linda, Calif. “That’s why people are going with the adjustable rate mortgage.”

ARMs also help some home shoppers get a toehold in the market, allowing them to buy a house they couldn’t afford with a 30-year fixed, mortgage brokers said.

“Better to get the house now before prices go up,” said John Hoppe, a mortgage broker in Anaheim, Calif.

The use of adjustable mortgages still is well below average and remains significantly below the peak of 80 percent of loans at the height of the housing boom in 2004-05.

Some brokers think ARMs still may be too risky for some borrowers. If rates go up, many homeowners may be unable to afford those higher payments.

ARMs, for example, aren’t for people planning to stay put a long time. For them, it’s still better to lock in a fixed rate while interest still is near historic lows. The average rate on a 30-year fixed was 4.29 percent last week, according to government-sponsored mortgage giant Freddie Mac.

“It’s still a phenomenal rate,” said Paul Miller, a senior loan officer at a mortgage banking firm in Aliso Viejo, Calif. “I’m not putting a lot of my borrowers into ARMs right now because 30-year money is cheap. … Rates have nowhere to go but up.”

The California Association of REALTORS®, for example, forecast that interest on 30-year, fixed-rate mortgages will rise to 5.3 percent in 2014, up 1 percentage point.

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