ARM Popularity Grows
Adjustable-rate loans are more popular now than at any time in more than two years as interest rates start climbing. According to Mortgage Bankers Association data, the share of home loan applications taken by ARMs was the largest since October 2014. As nearly three decades of MBA data show, adjustable-rates get a lot more popular when the threat of rising rates looms.
According to the MBA, the average 5/1 ARM rate was nearly a full percentage point lower that fixed rates, at 3.48%. ARMs like the 5/1 are loans with starter rates which can increase after a set period — in this case five years. The ARM would represent savings of $93 a month for homes at the national median of $228,900, according to Zillow’s online mortgage market calculator.
ARMs made up a whopping 36.6% of total applications in March 2005, arguably the height of the housing frenzy, when rates were higher and the assumption was that any home loan represented a way into a home, with a refinance to follow later. That share was a more manageable 7.7% last week, and the 27-year history has the ARM share at 13.9%.
Note: Today’s adjustables are safer than those offered in the past. If you would like to learn more about today’s adjustable choices, contact us.