As mortgage rates rise, more buyers in expensive areas are turning to adjustable-rate mortgages to curb costs.
According to CoreLogic, a real estate data firm, ARMs are more common in expensive metros and among home buyers who are borrowing larger balances on their mortgage loans,. “As ARMs have a lower initial interest rate than [fixed-rate mortgages], buyers see bigger monthly savings in the initial payment, especially for bigger loans,” CoreLogic notes on its Insights blog.
In August 2018:
Originated Loan Ranges ARM Share of Mortgages
$1 million & above 51%
$400,000-$999,999 21%
$201,000-$399,999 7%
ARMs earned a bad reputation during the housing crash when homeowners faced resets from their initial interest rate and could no longer afford their monthly payments. The ARM share was more than 50 percent during mid-2005 but then dropped to a low 4 percent in early 2009. (Corelogic)
In my opinion,ARM's are not a bad thing. A consumer just needs to fully understand the risks and rewards. Responsible borrowing!
Source: "Are Adjustable-Rate Mortgages More Popular as Mortgage Rates Rise?” CoreLogic Insights Blog (Nov. 14, 2018