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Strategist discusses getting a mortgage when rates rise

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

amedved | iStock | Getty Images

A 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 taken a “boost” from seeing mortgage rates rise by around 2% , there were still reasons for optimism.

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

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

She said the bank loan officer they met gave them a plastic mortgage calculator, which was essentially a “sliding scale” that showed what the repayments would be for every $1,000 borrowed, based on of the interest rate. The scale went from 6% to 20%. Hooper said that reflects the range of interest rates over the past few decades.

“I 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 higher for some people. The Federal Reserve raised interest rates half a percentage point earlier in May, pushing the federal funds rate between 0.75% and 1%.

Data released by Experian in April showed that overall debt levels in the United States 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 from $9.6 trillion in 2020.

Hooper said that “for those with fixed rates, that’s wonderful and luckily we don’t have the type of mortgage products that we had before the global financial crisis, where there was a reset that happened. continued after a few years and many could not pay their mortgages.”

“So that’s definitely 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,” she added.

The Mortgage Banker Association’s seasonally adjusted index showed that in April demand for variable rate mortgages (ARMs) doubled to 9% from the previous three months.

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

CNBC’s Diana Olick contributed to this report.

Correction: This story has been updated to correct a misspelling of the name Columbia Heights in the photo caption.


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