Potential homebuyers are seeking out ways to afford their monthly mortgage payments.
While the number of adjustable-rate mortgage (ARM) originations rose just over 40 percent from the first quarter to the second quarter of this year, ARM’s have lower interest rates than fixed-rate loans, as well as have a fixed period of at least five years. So after years, the rate can change, and still ARM’s are considered riskier than the classic 30-year fixed mortgage.
By definition, an adjustable-rate loan’s rate will be different after the fixed period, either increasing or decreasing depending on the broader market rate.
According to CNBC.com, “ARM demand usually rises from the first quarter to the second quarter, because spring is the busiest season for home buying, and it’s when families dominate the market, searching for bigger, higher-priced homes. Still, the jump in ARMs in the spring of 2016 was 15 percent compared with this year’s 40 percent jump. This makes the case that buyers this year are struggling with affordability and opting for a lower-rate product. While mortgage rates remain very low, historically speaking, they have been inching up. The vast majority of homebuyers favored the safety of the 30-year-fixed rate mortgage since the housing crash, but weakening affordability is now changing that.”