Strategists discuss getting a mortgage when rates are rising

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

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

Christina Hooper, chief global market strategist at Invesco, told CNBC’s “Squawk Box Europe” on Friday that although borrowers may feel some “whiplash” as mortgage rates rise by about 2%, there is reason to be optimistic.

“We are living in a very low-rate environment, and I suspect that when the Fed ends its tightening cycle, we will still be in a much lower-than-historic environment,” he said.

To illustrate this, Hooper recalls her own experience buying a “starter home” in 1996 with her husband as a newlywed.

He said they met with the bank’s lending officer who gave them a plastic mortgage calculator, which was basically a “sliding scale” that showed they would be repaid for every $ 1,000 they borrowed depending on the interest rate. The scale ranged from 6% to 20%. Hooper says it reflects the range of interest rates over the past few decades.

“I hold on to it because it was a sign of the past and it reminds me of history,” Hooper said, adding that in 1981 his parents’ mortgage rate was 13%.

At the same time, Hooper acknowledges that rising levels of debt 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 federal funds rate to 0.75% -1%.

Data released by Experian in April shows that the overall debt level in the United States rose 5.4% to $ 15.3 trillion in the third quarter of 2021 from the previous year. Mortgage debt rose 7.6% to $ 10.3 trillion in the third quarter of 2021, from $ 9.6 trillion in 2020.

Hooper said that “for those for whom fixed rates are surprising and fortunately we do not have the kind of mortgage product we had before the global financial crisis, where a reset was done a few years later and many could not. Their mortgage affordability.”

“So this is definitely good news, but for those who are still shopping there for the variable rate, although the rate is much higher, it is going to feel much less affordable,” he added.

The Mortgage Bankers Association’s Seasonally Adjusted Index shows that demand for adjustable-rate mortgages (ARM) doubled to 9% in April from three months earlier.

ARMs offer lower interest rates, but are considered somewhat riskier than 30-year fixed rate mortgages. ARMs can be fixed for terms like five, seven or 10 years, but the term adjusts to the current market rate.

CNBC’s Diana Alik contributed to this report.

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