"It's encouraging to see that consumers have not been scared off by the 'credit crunch' and 'mortgage meltdown' talk, and are returning to secure, tried-and-true home financing," Wachter said. "This trend emerged in the first half of 2007, and I expect it to continue as homebuyers become more informed about their mortgage options and lenders reign in risky products." Dr. Wachter's Index shows that both borrowers and lenders steered clear of risk and opted for safer mortgages in the first half of 2007. Adjustable-rate mortgage applications dropped 46.9 percent from September 2006 to September 2007, while applications for fixed-rate loans climbed 30.2 percent in the same period. Borrowers who put down less than 20 percent on a home are flocking to insured, single mortgages rather than risky piggyback loans. The number of borrowers using private mortgage insurance jumped 36 percent in the second quarter, and is up 69 percent since the outset of 2006.
"There is particularly good news for first-time and low down payment homebuyers in the second half of 2007," said Wachter. "Long-term, fixed-rate mortgages are still widely available and affordable, even in today's market. My advice to these borrowers is to stick with a traditional fixed-rate loan with mortgage insurance. That way, they will be sure to keep their payments stable and affordable over time."
Published quarterly by Dr. Wachter, and in association with Genworth Financial Inc., the U.S. Mortgage Payment Index evaluates which mortgage products offer borrowers the best value, comparing payments for various mortgage options. Wachter's third quarter analysis finds that monthly payments on long-term, fixed-rate loans with mortgage insurance remain steady over five years - with one product dropping by 9.3 percent. Since combination, or piggyback, loans are subject to rate resets, payments can jump as much as 148 percent in five years.
"By locking in an affordable rate now with a fixed-rate mortgage, new buyers and refinancing borrowers can avoid the payment shock that is imminent for an estimated 2 million American homeowners, as their adjustable-rate loans reset in the coming months," Wachter said. The following mortgages are featured in the new Index for September. The first amount reflects the payment in month one, the second amount reflects the payment in month 61:
- 30-year Fixed with monthly mortgage insurance: $1,400 / $1,270 (drops 9.3%)
- 30-year Fixed with Single Financed Premium mortgage insurance: $1,306 / $1,306 (no change)
- Combo: 30-year Fixed and HELOC: $1,321 / $1,428 (rises 8.1%)
- Combo: 30-year Fixed and Closed-End Second: $1,327 / $1,327 (no change)
- Combo: 10/1 Interest-Only ARM and HELOC: $1,196 / $1,303 (rises 8.9%)
- Combo: Pay Option ARM and HELOC: $714 / $1,771 (rises 148%)
