Adjustable-rate mortgages — ARMs in real estate lingo — are making something of a comeback. As opposed to a 30-year fixed-rate mortgage, adjustable-rate mortgages have interest rates that reset to the market a few years down the line.
According to the Mortgage Bankers Association, the number of adjustable-rate mortgage applications jumped 25% last week, to their highest level since 2022.
If the phrase adjustable-rate mortgage triggers your late 2000s financial crisis PTSD, you’re not alone. A few years back, southeast Arizona loan officer Amy Moreno tried to show a would-be homeowner the tens of thousands in savings they could get from one.
Even with an introductory interest rate significantly cheaper than a 30-year-fixed, it was a no-go for this borrower.
“Their fear from the information that was out there from the mortgage meltdown, they were too afraid to take that risk, which is understandable,” she said.
Adjustable-rate mortgages have changed since the aughts. Borrowers nowadays are vetted better, and typically lock in that cheaper intro rate for a longer period of time — five, seven, or 10 years.
Roughly 10% of mortgage applications are now for adjustable-rate mortgages, which is well above the share of the 2010s.
Joel Kan, deputy chief economist at the Mortgage Bankers Association, said adjustable-rate mortgages are regaining popularity because homebuyers are searching for any savings they can get.
“People are looking for a slightly lower rate option to the extent that they can, because some of these markets still have pretty high home prices,” he said.
Because of the long lag time for rates to actually adjust, adjustable-rate mortgage borrowers today won’t benefit from any predicted Federal Reserve rate cuts this year.
But they’re willing to take the risk that, in the future, rates won’t be higher than they are right now.