if interest rate are low, which mortgages will gain popularity, fixed rate or variable rate? im just confused, because i see two conflicting articles: first one says: Reasons why VIRM gaining popularity? Because rates have been decreasing. People want to take advantage of lower credit. People are taking variable rate in anticipation of locking in to a better 5-year fixed rate in the future. second one says: ARMs are still widely used, despite today’s relatively low interest rate levels. Many borrowers are willing to bear the interest rate risk for the discount in contract rate (and expected yield) which the market will grant. can someone plz explain this. it seems to me like the first one says variable rate mortgages are gaining popularity when rates decrease, and the second one says rates decreasing shouldnt cause virm to gain popularity, but theyre still widely used because of other factors. thx!
Hmmm…typical vague stuff from cfai? In almost all circumstances the variable rate mortgage will have lower initial payments. That is the main reason people choose them.
First one says that when rates are DECREASING, popularity goes up. The second one says nothing about decreasing rates, it simply says that the level of rates is relatively low…meaning the decline has already taken place, and rates have nowhere to go but up(or hang out at the low levels).