With rates continuing to rise, we’re noticing a trend of increased adjustable rate mortgages(ARM’s). I remember when rates were in the 3%’s, and getting an ARM was very uncommon because when rates were already so low. However, we are seeing more of them now as a way for buyers to afford a more expensive home since the rates tend to start lower than fixed rate mortgages. Buyers I’m speaking with are feeling comfortable with the perspective that since rates are in the 6’s and 7’s, there is confidence that rates will drop. If they do, buyers can refinance into fixed rate debt, or they may decide to sell.
When buyers ask me about adjustable rate mortgages, we review two term periods – the 5/1 and the 10/1. In the 5/1, the rate is fixed the first 5 years of ownership before adjusting to the market. In the 10/1, the rate is fixed the first 10 years before adjusting to the market. I very much prefer a 10 year horizon to a 5 year horizon in a volatile rate market like we’ve seen the last year and a half, so if I were getting an ARM right now, that is the product I would go with.
If you have questions about different loan products and creative financing, we are happy to talk further!