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Whether refinancing or purchasing a home, the mortgage process can be intimidating. Let’s think about it for a moment. The application alone is nine pages long and the interviewer asks questions that literally make you feel like you are signing your life away. In 2020, banks and mortgage companies saw interest rates drop to historic lows and property values increasing. This market shift allowed borrowers to qualify for more house, while also increasing equity.

Fast-forward just two years; rates have almost tripled and borrowing capacity is about 63% of what it was in 2020. There is also what we have come to recognize as an inventory shortage……. houses are simply not there. Houses that are for sale are being purchased so quickly with multiple offers and CASH offers, that it’s creating all-out bidding wars. Contracts are being submitted with no contingencies meaning, in some cases, no financing, no appraisal, and no home inspections. Not to mention, the offer price in most cases is above the asking price. So, the question is……Are we in an affordable lending crisis? Absolutely! Home buyers that purchased in 2020 and 2021 saw the benefit of earning equity as home prices increased. Buyers trying to purchase now, unfortunately, may have to sit tight while the market attempts to correct itself.

How does this happen? Well, economic forecasters are predicting that interest rates will remain at high levels at least through the end of the year, unless inflation decreases. Some experts are saying rates may reach well over 6%. It’s certainly close to that depending on the parameter of the loan application. In the meantime, creating mortgage loan options for our borrowers is key.

Historically, adjustable-rate mortgages (ARMs) were frowned upon because of the uncertainty of the payment increasing. However, in this high interest rate environment market, ARMs can be appealing because of the lower initial rates. Here are just some of the benefits:

ARMs offer an inexpensive way for borrowers who don’t plan on living in one place for a long time to qualify for more house.

ARMs can help borrowers save and invest more money. For example, someone who has a payment that is $100 less with an ARM, can put that money in higher return investments.
Lenders consider lower payments when qualifying, which allows the borrower to purchase more house.

ARMs are fixed for a specified number of years. In some cases, up to 10 years.
In a high-rate environment like today’s market, ARMs may make sense because of the low fixed rate period, allowing borrowers to pay less each month. Bottom line, ARMs and fixed-rate mortgages are two ways to finance a home purchase while still providing similar benefits.

Industrial Bank’s Residential Lending Team is available to assist with your home buying process. Trust us to provide you with the best options available to meet your specific financial need.

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