Welcome back to the era of ARM’s

juliegrandon
Jul 16, 2022
2 min read

Updated: Apr 17, 2024

This blog guest authored by Annika Mikkelsen of Buckingham Mortgage

Adjustable-Rate Mortgages Make a Comeback

Data from the Mortgage Bankers Association (MBA) shows that ARMs now account for almost 10% of all mortgage applications in the US, compared to just 3% at the start of the year.

Why are we seeing an increase for ARM applications?

When mortgage rates rise, ARMs become more popular with buyers who want to keep their payments lower during the early years of the loan. Today’s ARMs are typically hybrid ARMs, which have a fixed interest rate for a period of five, seven or 10 years, followed by an annually adjusted mortgage rate for the rest of the 30-year loan term. The amount the loan can adjust is capped for the first adjustment, subsequent adjustments and an overall maximum adjustment, called a lifetime cap.

Why consider an ARM?

Getting an adjustable-rate mortgage makes the most sense in situations where there's a big gap between fixed and variable mortgage rates and an expectation that at least one of the following situations will occur during your fixed term:

You'll sell the property
Interest rates will decline, giving you the opportunity to refinance into a fixed mortgage
Your rate caps are manageable, and you can still afford the home during the variable period, assuming a worst-case scenario

Understanding the term of the variable portion of the loan is critical. Here are key questions to ask your loan officer.