Strategist discusses getting a mortgage when rates are rising

Historic row houses in the Columbia Heights neighborhood of Washington DC, USA

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One strategist told CNBC why she thinks it’s still a “relatively good environment” to borrow money, including mortgages, despite rising interest rates.

Kristina Hooper, chief global market strategist at Invesco, told CNBC’s “Squawk Box Europe” on Friday that while borrowers may have experienced “whiplash” seeing mortgage rates rise around 2%, there were still reasons. to be optimistic.

“We live in a very low rate environment, and I suspect that when the Fed is done with its tightening cycle, we will still be in a very low rate environment relative to history,” he said.

To demonstrate this, Hooper recalled her own experience buying a “starter house” with her husband as newlyweds in 1996.

She said the loan officer at the bank they met with gave them a plastic mortgage calculator, which was essentially a “sliding scale” showing what the repayments would be for every $1,000 they borrowed, depending on the interest rate. . The scale went from 6% to 20%. Hooper said this reflected the range in interest rates over the last few decades.

“I’ve kept it because it was a holdover from the past and it reminded me of history,” Hooper said, adding that his parents had a 13% mortgage rate in 1981.

At the same time, Hooper acknowledged that rising debt levels could make this cycle of rising interest rates feel higher for some people. The Federal Reserve raised interest rates by half a percentage point in early May, pushing the fed funds rate between 0.75% and 1%.

Data released by Experian in April showed overall US debt levels rose 5.4% to $15.3 trillion in the third quarter of 2021 from a year earlier. Mortgage debt increased 7.6% in the third quarter of 2021 to $10.3 trillion, up from $9.6 trillion in 2020.

Hooper said that “for those who have fixed rates, that’s wonderful and fortunately we don’t have the kind of mortgage products that we had before the global financial crisis where there was a reset that continued after a few years and many were unable to pay their mortgages”.

“So that’s certainly the good news, but for those with variable rates, for those who are still buying, even though the rates are much higher, it’s going to feel a lot less affordable,” he added.

The Mortgage Bankers Association’s seasonally adjusted index showed demand for adjustable-rate mortgages (ARMs) in April had doubled to 9% from three months earlier.

ARMs tend to offer lower interest rates, but are considered slightly riskier than a 30-year fixed-rate mortgage. ARMs can be set at terms such as five, seven or 10 years, but are adjusted once the term reaches the current market rate.

CNBC’s Diana Olick contributed to this report.

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