With mortgage rates rising to heights not seen in 10 years, lenders are looking for different ways to stay competitive, from lowering rates on 30-year fixed products to offering more ARMs.

While mortgage interest rates have risen at an unexpected pace in recent months, some local lenders have taken steps to keep their mortgage products affordable for homebuyers and homeowners who became used to some of the cheapest loans in recent history over the past two years.  

“It’s the mission of our company, our financial institution to help people,” said Christopher Foley, president at Whitinsville-based UniBank. “So, we decided probably three or four weeks ago that we were going to lower all our rates while everyone was going higher.” 

Nationwide, December 2021 ended with the average on a 30-year, fixed-rate mortgage at 3.11 percent and at 2.33 percent on a 15-year, fixed-rate loan, according to Freddie Mac’s weekly survey. By mid-May, the 30-year, fixed-rate mortgage was at 5.25 percent, while a 15-year, fixed-rate loan was at 4.43 percent. 

While the low supply of housing in Massachusetts and rising home prices add to the challenges borrowers face amid rising rates, homebuyers and homeowners have found local lenders looking to continue to attract customers with aggressively priced mortgage products.  

“Community banks – all of us are very competitive,” said Ed McDonald, president of Salem Five Mortgage. “If you’re a quality homebuyer, you’re still in the driver’s seat. Competition dictates that you’ll end up in a good program.” 

 Return of ARMs 

Massachusetts has seen mortgage activity decline so far in 2022. The number of purchase loans in the state fell by 8 percent year-over-year in the first quarter, to about 15,250 loans, according to The Warren Group, publisher of Banker & Tradesman. Refinance activity fell even further, with fewer than 45,000 loans in the first quarter compared to more than 91,000 in the same quarter of 2021. 

For homebuyers looking for rates lower than what’s available on Fannie Mae and Freddie Mac fixed-rate loans, adjustable-rate mortgages have become popular. About half of Salem Five’s recent purchase loans have involved ARMs, particularly those that start with a seven- or 10-year fixed periods, McDonald said.  

“If somebody had their heart set on a rate in the 3s or 4s, they can just get it,” McDonald said. “Seven years or 10 years is a long time.” 

McDonald said Massachusetts community banks that keep loans in their own portfolios have been competitive this year in offering ARM products with rates lower than those available on typical Fannie Mae and Freddie Mac loans. 

While the rates will vary annually after the fixed period on ARMs, McDonald said homeowners often make other decisions before the fixed period is over, including selling their home. 

With fixed-rate mortgages having dominated the mortgage market for about a decade, McDonald said, Salem Five has been training both newer and veteran loan originators on ARMs. 

We want all our buyers to be well aware of the pluses and minuses of each product,” McDonald said. “We’ve just really focused on training.” 

 Fixed-Rate Demand Still Strong 

While the ARM products with seven- and 10-year fixed rates have recently been the most popular, UniBank has seen demand increase again for 30-year fixed rate loans, including for jumbo loans, said Jeff Bajema, the bank’s senior vice president of retail lending.  

“We still have many customers who are actively looking for homes and bidding on homes,” Bajema said. “It doesn’t seem like the higher rates have affected the desire to purchase a home at all.” 

Foley, the bank’s president, said the renewed interest in these fixed-rate loans followed the bank’s recent decision to lower rates. He added that UniBank also makes sure to offer competitive rates on ARMs. 

“We did that to help the customers out in this area afford the mortgage that they want,” Foley said. “The rates are still very attractive.”  

While rates are higher than what homebuyers would have seen even six months ago, Foley said consumers understand that change is happening in the economy and recognize fair rates. He added that, like in all of Massachusetts, the low inventory of houses in Central Massachusetts continues to create difficulties for homebuyers.

“If you’re a quality homebuyer, you’re still in the driver’s seat.” 

— Ed McDonald, president, Salem Five Mortgage 

Hanscom Federal Credit Union has seen buyers shift to ARMs, including among those looking for jumbo loans that will give them lower rates so they can better afford higher home prices, said Tom Becker, the credit union’s chief lending officer. Still, some homeowners want the security of fixed-rate mortgages. 

“They think they’re in their dream home, and they’re going to be in it for the next 20 years,” Becker said. “They don’t think rates are going to come down anytime soon, so they opt for the comfort of a 30-year fixed so they can sleep at night.” 

The credit union has also seen an increased demand for a first-time homebuyer product that provides 100 percent financing on a 30-year fixed mortgage, he added. 

 Appreciation Opens HELOC Opportunities 

While lenders still see some refinance activity, particularly with borrowers looking to consolidate debt, homeowners have turned to other products to access equity in their homes or make home improvements.  

Hanscom Federal Credit Union has seen growing demand for home improvement loans available through the Mass Save HEAT Loan program, which finances certain energy efficiency home upgrades with no-interest loans. Becker said he has seen applications for that program increase this year and expects more interest in that program during the summer.  

Home equity lines of credit have seen increased activity, Becker said, noting that the credit union recently moved two staff members from the purchase mortgage team to work on HELOC applications. 

HELOCs, which usually offer a rate discounted from the prime rate, has advantages tied to the application process and document requirements are less complicated compared to a

Diane McLaughlin

refinance, Becker said. And with rising home values, borrowers have more equity to access. Most homeowners who use this product have a specific project or expense to finance, he added. 

HELOCs often come with an introductory rate, and Federal Reserve rate hikes will affect the rate once the introductory period ends. Still, McDonald, with Salem Five, said many homeowners have looked to HELOCs for short-term debt. 

“There’s a lot of homeowners with a lot of equity because of appreciation, and if they need short-term money, equity lines loans are a good alternative right now,” McDonald said. “Whereas for the last few years, probably not so much, because you could tap that equity by just doing a cash-out refinance.” 

Local Lenders Confront Challenging Mortgage Market

by Diane McLaughlin time to read: 4 min