A recent report from LendingTree has shown a significant increase in the number of adjustable-rate mortgages (ARMs) offered to borrowers. In the last year, the number of ARMs provided to consumers has soared by 230 percent. 

Demand Rises for Adjustable-Rate Mortgages 

According to the LendingTree report, the demand for adjustable-rate mortgages is rising.

This surge is a comeback for ARMs, which were more common in the early 2000s, but fell out of favor after the 2007-2009 housing market crisis.

Benefit of ARMs

These loans can offer borrowers lower initial interest rates than fixed-rate loans, making them more attractive to those looking to save money on their mortgage payments.

IMG_1815Source: vacu,org

However, there is some risk involved with these loans, as the interest rate can change over time. As a result, borrowers should understand the terms and conditions before signing up for an adjustable-rate mortgage.

Fixed-Rate Mortgages Decrease

While adjustable-rate mortgages have been on the rise, the number of fixed-rate mortgages offered by LendingTree has decreased significantly in the past year, falling 9.2 percent, according to the report. 

IMG_1814Source: credible.com

With increasing mortgage rates, more and more borrowers are reconsidering ARMs. The report attributes this comeback to the fact that mortgage rates have nearly doubled in the past year.

As a result of rising interest rates, borrowers are looking for ways to keep their monthly payments manageable, and ARMs offer flexibility. Of course, there is still some risk involved with these loans, but for many borrowers, the potential benefits outweigh the risk.

ARMs and Credit Scores

The report revealed that ARMs are being offered at higher rates to borrowers with lower credit scores recently. 

The report showed that adjusted-rate mortgages offered to borrowers with a credit score above 680 dropped by 21.23 percent, while mortgages being offered to borrowers with credit scores between 620 and 679 grew by 19.98 percent, and mortgages offered to those with scores below 620 increased by 1.34 percent. 

IMG_1816Source: fool.com

The Bottom Line

Many people currently looking to purchase a home are attracted to the idea of an adjustable-rate mortgage.

An ARM loan offers a lower interest rate for a set period, typically anywhere from three to ten years. Because of this, homeowners can save an average of $157 per month (according to LendingTree's recent report) compared to a fixed-rate mortgage. After that time, the interest rate adjusts annually, based on market conditions - and payments can either increase or decrease. 

However, it's important to remember that these savings are not guaranteed long-term. If interest rates do rise after the initial period, monthly expenses could also start to increase. As a result, borrowers need to be mindful of spending and ensure that they can still afford their mortgage payments if rates go up.


The Glass House Real Estate Team

The Glass House Real Estate Team

We are passionate about empowering home buyers and sellers. Our team brings a wealth of knowledge and experience. We will help you seamlessly navigate the home buying or selling process stress-free.