Low-Rate Financing and Hybrids Are Features of Today's ARM Market

MCLEAN, VA--(Marketwired - Jan 22, 2015) - Freddie Mac (OTCQB: FMCC) today released the results of its 31^st Annual Adjustable-Rate Mortgage (ARM) Survey of prime loan offerings, which was conducted January 5 to January 8, showing ARM initial-period rates have decreased since last year and hybrids dominate lenders' ARM offerings. More information is available at the January 2015 Treasury-Indexed ARM Features table.

News Facts

• Interest Rates Lower. The initial interest rate was lower for all ARM products compared to last year. For example, for a one-year, 5/1 or 10/1 Treasury-indexed ARM, the average initial rate was 2.39 percent, 2.98 percent, and 3.71 percent, respectively, down 0.2 percentage points for the one-year and 5/1 products and 0.3 percentage points for the 10/1 ARM. The larger decline for the 10/1 ARM reflects the drop in longer-term interest rates over the past year. 
  
  
• Hybrids Are Hot. Hybrid ARMs continued to be the most popular loan product offered by lenders and chosen by ARM borrowers. Hybrid ARMs have an extended initial fixed-rate period -- generally three to ten years -- and then adjust annually thereafter. Nearly all of the ARM lenders participating in the survey offered a hybrid. The 5/1 hybrid (a five-year fixed-rate initial period before the rate resets annually) was by far the most common, followed by the 7/1, 3/1 and 10/1. Far less common were ARMs where the repricing frequency was fixed for the life of loan, such as a one-year adjustable, a 3/3 ARM (which adjusts once every three years), or a 5/5 ARM (which adjusts every fifth year).
  
  
• Substantial Payment Savings During Initial Years. In early January 2015, the interest rate savings for the 5/1 hybrid ARM with a 30-year term -- the most common ARM offered in today's market -- compared to the 30-year fixed-rate mortgage amounted to 0.75 percentage points. For a $250,000 loan, the monthly principal and interest payment on a 5/1 hybrid would be about $103 less than on the 30-year fixed-rate loan over the first five years of the loan.