With fixed interest rates soaring, should variable interest rates be considered for home loans in the United States?

If you choose a fixed interest rate, it means that your mortgage interest will be 4.25 during all loan periods (for example, 20 years or 30 years, if you pay off your mortgage early). You will not be affected by future interest rate increases or central bank interest rate cuts. relation. If you choose a floating interest rate, the interest rate shown in the contract is 20 basis points below the LPR annual interest rate. This year it is 4.25, and there will be variability in the future as well. If the annual interest rate of the 5-year LPR increases by 15 basis points after 3 years, your mortgage interest will become 4.4; if the interest rate increases by 50 basis points, your mortgage interest will become 4.75. Naturally, if the central bank cuts interest rates, your mortgage interest rate will actually be lower than the current 4.25.

With mortgage rates soaring in recent weeks to levels not seen in more than a decade, home loan lenders are exploring other financing options. According to data from the Mortgage Financiers Association, during the first week of May, about 11 mortgage applications were for adjustable-rate mortgages (ARMs). This is almost the same number of ARM applications three months ago when mortgage rates were lower. Twice the proportion. If you're trying to buy a property with an adjustable rate loan, here's what you need to know. Are Adjustable Rate Loans a Good Idea in 2022?

Generally, choose a floating interest rate and the payments are fairly fixed in the early stages. Fixed interest rate cycles generally last for 5, 7 or 10 years. After the borrower has paid the above annual interest rate, it will enter the floating interest rate stage. At this time, borrower interest rates and payments may change on time. With so many homebuyers switching to adjustable-rate mortgages, you may be wondering whether this home loan option is right for you.

First, you must choose where the annual interest rate is likely to be at the end of the fixed-rate period. However, because no one can completely and clearly predict long-term interest rate trends, in five or 10 years, interest rates may be very different from what you expect.

PNC Financial Institutions Executive Vice President John Boomer (Peter Boomer) said that when choosing a fixed-rate mortgage and a reverse mortgage, you should still carefully consider the unique operating conditions.

"If a person is not prepared to stay in their home long-term, if they feel that interest rates are likely to go down in the future, or if they are trying to make a lot of mortgage payments in the near future, then it's a good idea to have a mortgage payment in the near future," Boomer said. Such risks are worth it.” Similarly, the average ratio of floating borrowings in the United States increased from 2.41 at the beginning of the year to 4.41 at the end of June. Although the fluctuating bank loan interest rate is likely to provide the lowest original interest rate among all mortgage loan products now, by the end of the 5-year fixed-term contract, the annual interest rate may adjust significantly.

As far as the future direction of mortgage interest rates is concerned, some field teams have brought predictive analysis inspired by scientific research. The International Mortgage Bankers Association predicts that 30-year fixed mortgage interest rates will average 5 in 2022 and then decrease over the next decade, to 4.8 in 2023 and 4.4 in 2024. On the other hand, Freddie Mac predicts that the 30-year fixed rate will increase from 4.6 to 5 between 2022 and 2023. As a result, fluctuating bank loan rates may adjust.