The pandemic changed the housing market.
This has lead many buyers to consider adjustable-rate mortgages.
More buyers are choosing adjustable-rate mortgages
The cost of mortgages is increasing, but interest is too. The average contract rate on a 30 year fixed-rate mortgage has newly reached 5.37% near the end of April. This is the most popular type of home loan. Now, it is at the highest level since June 2009. Read more about it here.
Because of the increased interest rates, many home buyers are looking to lower their monthly cost by getting a different kind of housing loan.
Because fixed rate mortgages are expensive right now, many buyers are thinking about adjustable-rate mortgages (ARM). This loan type offers lower initial rates than a fixed one.
The savings you get when you first get an ARM doesn’t last. ARMs change all the time to reflect the current market.
Even ARMs usually start with a period of fix-rate interest. It is usually 3, 5, or 7 years. After that, the interest rate is levied on the payments and will change.
What is an ARM?
A fixed-rate mortgage means that the interest rate will stay the same during your loan period. Adjustable-rate mortgages change during your loan agreement.
The interest rates can fluctuate, so usually there’s is a cap to prevent sudden increase or decrease. However, the caps are usually pretty broad.
The caps also do not remove the risk of facing incredibly high interest rates in the future. A lifetime cap of 5% could still mean that 4.38% ARM you have now could be nearing 10% down the line.
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