ARMs Gaining Popularity As Interest Rates Rise

The majority of homebuyers choose fixed-rate mortgages (FRMs) over adjustable-rate-mortgages (ARMs) in order to not have to deal with the uncertainty of changing interest rates. However, there’s very little uncertainty right now — interest rates are going up. This does include both FRMs and ARMs, but ARMs tend to have lower starting rates — a 5-year ARM was at 4.28% in mid-April. Buyers are predicting that even with an adjustable rate, their rate is not likely to surpass the 30-year fixed rate of 5.37% as of the end of April.

ARMs aren’t exactly popular, though. Even with their share doubling in the past three months, that’s still only 9% of mortgages. About as large a share of potential buyers are instead choosing to simply wait for a better time, with mortgage applications dropping by 8% and refinance applications dropping by 9%. Refinance applications are also drastically lower than the same time last year, having dropped a whopping 71%. New mortgage applications also dropped since last year, by a much more modest but still significant 17%.

Photo by Josh Appel on Unsplash

More: https://www.cnbc.com/2022/04/27/adjustable-rate-mortgage-demand-doubles-as-interest-rates-hit-the-highest-since-2009.html

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