Adjustable Mortgages Hit New Low
Historically in the United States, adjustable rate mortgages have always accounted for a small portion of overall mortgage loan choices. During the boom a few years ago, they jumped up dramatically, but still held just a small portion of the market.
Today, they hold an even smaller portion of the market share due to many factors, but most of them resulting from a misunderstanding, or lack of education on the borrowers part before taking one. For most people, they are considered too risky. Funny thing is, the rest of the world is just opposite. Almost everywhere else, the adjustable loan is the only product available, and if they offer a fixed rate loan, it is rarely over 20-years. The 30-year fixed exists primarily just in the United States.
It might be time to rethink the adjustable loan, as the Monthly Treasury Average has just set another record low. A review of Federal Reserve data indicates that the MTA was just 0.19583 percent in November. It was the lowest level ever for the index based on data back to 1953.
Today, we are seeing a spread of about 1.25% between a 30-year fixed loan and the most popular adjustable, the 5/1 ARM. On a $200,000 loan, that is about $130 per month difference.
The MTA index is determined based on the daily average for the yield on the one-year Treasury note for each of the past 12 months. The one-year yield averaged 0.11 percent during November.
Why is this important? Because adjustable loans all have a margin and an index. The margin is permanently set based on the loan, while the index can change. The lower the index, the lower your adjustable loan.
If you currently have an adjustable mortgage loan, you should be very happy right now.