Adjustable Mortgages Less Attractive

March 13th, 2005

Sacramento home buyers shopping for a mortgage may find adjustable-rate loans less attractive than last year, since the “spread” between fixed and adjustable rates has narrowed drastically. Mortgage Lenders are “offering larger and larger discounts to encourage borrowers to give adjustables a second look,” according to Lew Sichelman in the Los Angeles Times (3/6/05). He goes on to say, however, that the discount may not compensate for the risk of much higher future payments. Sichelman quotes Frank Nothaft, chief economist for Freddie Mac, as saying, “Unless you need a mortgage for just a year, this kind of loan doesn’t make much sense.” When buying a home, buyers should analyze their needs and the possible long-term costs of various types of mortagage loans.

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