new york mortgage broker

Fed's interest rate control changes mortgage activity

A series of increases in the Federal interest rates over the last six months has significantly altered the type of mortgage borrowers are choosing, reports Park Avenue Mortgage Group, a leading New York mortgage broker.

"The change has been quite dramatic," says Ellen Bitton, president of Park Avenue Mortgage, "polarizing the mortgage market between 30-year fixed and 5-year adjustable mortgages." The report shows that in the third quarter of 1999, 45 percent of the loans were fixed-rate mortgages and 55 percent were adjustable. In the fourth quarter, 38 percent were fixed, 62 percent were adjustable. Although there are several ARM products available, the 5-year adjustable is the most popular by far, accounting for 35 percent of the mortgages Park Avenue Mortgage wrote during the fourth quarter. Its counterpart, the 30-year fixed-rate loan, accounted for an equal 35 percent of Park Avenue's business during this time period.

According to Bitton, as Federal interest rates rose, savvy buyers began to think short-term. Her study shows that the number of 5-year ARMs rose 15 percent from the third to the fourth quarter of 1999. Conversely, the number of 15-year fixed-rate mortgages declined from 10 percent in the third quarter to 2 percent in the fourth quarter. "As treasury yields went up, interest in the 15-year fixed rate mortgage declined," says Bitton.

"Interestingly, the number of 30-year fixed rate mortgages remained relatively stable, declining just 2 percent between the third and fourth quarters," says Bitton.

According to Manhattan Mortgage, today's 30-year fixed interest rate at 8 percent or more is quite reasonable, especially when compared to the double digit rates of the 1980's. Recently, rates hit 8.36 percent, the highest level in 43 months.

Bitton also believes that the shift in mortgage preferences is due partly to the big bonuses and profits doled out at the end of last year, much of which found its way into real estate purchases. The Park Avenue Mortgage report indicates that while the number of mortgages written decreased, the size or dollar amount increased. "This means there are a lot of high-end buyers in the marketplace," says Bitton. "While they may pay top dollar for their apartments, these buyers generally prefer short-term ARMs." The report also indicated a trend in down-payment options from the traditional 80/20 to 90/10.

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