Unlike the more popular fixed-rate mortgage loans, ARMs can offer temporary relief for homebuyers who want to avoid paying higher mortgage rates — however, they also come with risk. After the fixed introductory period — usually five, seven or ten years — the rate on an ARM loan adjusts periodically based on current market conditions.
Mortgage rates have remained elevated, adding fuel to one of the most unaffordable housing markets in decades. That led ARMs to gain traction despite their drawbacks.
According to data from Intercontinental Exchange, a global provider of technology and data, 1.7 million homeowners have bought homes with adjustable-rate mortgages since 2019. Many buyers who bought 5-year ARMs – one of the more popular offerings – will graduate into significantly higher monthly payments this year.
Is an adjustable rate a good idea?
An ARM may make sense for homebuyers comfortable with the risk of interest rate increases or those who plan to move or refinance before the fixed rate expires, Lorriane Jones, a loan consultant in Southern California, told CNN.
But when opting for an ARM, it’s key to keep a close eye on the details, otherwise things can turn difficult, fast.
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