Rising LIBOR Rates Spur Mortgage Refinancing From ARMS to Fixed

The rising interest rates are causing an increase in mortgage refinancing as households are changing their mortgages from Adjustable Rate Mortgages (ARMs) to Fixed Rate Mortgages. Countrywide Financial Corp and Quicken Loans are both expecting an increase in volume as homeowners get out of ARMs to more stable fixed interest mortgages.

About $200 billion of adjustable-rate mortgages will be reset this year, according to Calabasas, California-based Countrywide. Fifty-five percent of the home loans the lender made in the first quarter were used to replace floating-rate mortgages with ones that pay a fixed rate, compared with 47 percent a year ago. Next year, $1 trillion of floating-rate loans are due to reset.

The difference between the monthly payment on an adjustable- rate home loan and a 30-year mortgage narrowed as the Federal Reserve raised interest rates 15 times since June 2004. The monthly payment on a floating-rate mortgage was about 30 percent less than for a loan charging a fixed rate two years ago. Today, the gap is about 10 percent.

“The consumer preference these days is for the longer-dated mortgage” loans that reduce interest-rate risk, said Larry Goldstone, chief operating officer of Santa Fe, New Mexico-based Thornburg Mortgage Inc., which made $5 billion of adjustable-rate loans last year. via Bloomberg