Consumers may be willing to take bigger risks to own a single-family home, as demand for adjustable-rate mortgages (ARMs) has surged to the highest level since 2008. Would-be homebuyers are seeking lower initial monthly payments amid rising homeownership costs.
Adjustable-rate mortgages offer a lower starting interest rate compared to fixed-rate mortgages, making them attractive to buyers looking to save money upfront. However, these loans can fluctuate after the initial fixed period, potentially leading to higher payments in the future.
“I don’t think ARMs are just like completely insane. I think they’re at least worth considering for some people who are buying a home,” said Joel Larsgaard, a financial podcaster and co-host of ‘How-To Money.’
Many homeowners experienced the risks of ARMs during the Great Recession when many of these loans reset to higher rates, causing defaults and contributing to the housing market collapse.
Joel Larsgaard advises that ARMs could represent savings for those planning to stay in a home for a short period, such as five to eight years, as the rate shouldn’t dramatically reset within that timeframe.
Larsgaard emphasizes the importance of doing your homework, noting that ARMs typically increase by about 2 percent a year after the initial fixed rate period. He recommends getting quotes from multiple mortgage companies, including credit unions, mortgage brokers, and local banks, to save the most money.
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