Adjustable Rate Mortgages: The Once Money-Saver Now Losing Its Luster

In the grand puzzle of homeownership, an adjustable-rate mortgage (ARM) has typically represented a tantalizing piece for many home buyers. Known for their initial low rates that make the early years of homeownership more affordable, ARMs have often been the go-to solution in times of soaring 30-year fixed-mortgage rates. However, today’s mortgage landscape tells a different story.

Adjustable Rate Mortgages: The Once Money-Saver Now Losing Its Luster

Presently, the appeal of ARMs is rather dim, thanks to a financial twist of fate. With the average rate on ARMs oscillating between 6.5% and 7.21%—almost equivalent to the average 30-year fixed rate of 6.95% as of July 5, as stated by Bankrate—borrowers now face an unfamiliar conundrum. Without the allure of lower initial monthly payments, the use of ARMs brings the risk of potentially higher future payments if the Federal Reserve keeps interest rates high.

This shift in dynamics comes as an additional blow for aspiring homebuyers grappling with steep mortgage rates and a scarcity of affordable homes. “Going with an ARM now rather than a 30-year fixed is a pure gamble on lower rates since the initial-rate advantage has all but disappeared,” explains Greg McBride, chief financial analyst at Bankrate.

McBride’s recommendation? Opt for a 30-year fixed-rate mortgage and consider refinancing if rates drop. But before making that decision, it’s crucial to comprehend the underlying dynamics influencing the current ARM scenario.

Why the ARM Appeal Is on a Downswing

The charm of ARMs has always been their rhythmic dance with interest rates. In 2022, when the average rate on a 30-year fixed-rate mortgage hovered around 5.55%, ARMs offered significantly more attractive rates ranging from 4.19% to 5.46%. Not surprisingly, they were a more appealing choice for many home buyers.

Fast-forward to now, and ARMs’ popularity has dipped. Mortgage applications for ARMs fell to 6% for the week ending June 30, from around 10% the same time last year, according to the Mortgage Bankers Association.

The cause? An inverted yield curve, where short-term interest rates supersede long-term rates—contrary to the norm. This anomaly wipes out the fundamental advantage of ARMs, which traditionally flourish with lower initial rates due to their shorter term compared to 30-year mortgages.

ARMs: A Calculated Risk for Some

Despite their current shortcomings, ARMs haven’t completely lost their shine. They may still serve the needs of specific groups of buyers, such as those intending to sell their homes before the ARM rate resets, or property investors looking to flip.

If rates decrease during the reset period, ARMs could lead to lower rates, putting these buyers at an advantage over their counterparts with a 30-year fixed mortgage who may face hefty closing costs to refinance.

ARMs are also being favored by buyers in the market for higher-priced homes. A slightly lower interest rate on a large loan can lead to considerable savings over the fixed portion of the loan term. For instance, a $2 million ARM with a 6.25% interest rate fixed for 10 years could result in monthly savings of about $327 compared to a 30-year fixed-rate mortgage at 6.5%.

The Potential Reemergence of ARMs

While the current situation seems bleak for ARMs, the potential for a resurgence exists. When the Federal Reserve eventually slashes short-term rates, ARMs might regain their former allure. Most home buyers, however, will need to weigh the potential savings against the certainty of a 30-year fixed-rate loan.

This means buyers considering an ARM should still ensure they can afford the maximum possible interest rate on the ARM if necessary, even if faced with unexpected circumstances like a job loss, advises Robert Heck, senior vice president at Morty.

In conclusion, while ARMs may not be the money-saving darling they once were, they still hold a place in the diverse landscape of mortgage options. It’s essential for prospective homebuyers to assess their financial stability, risk tolerance, and long-term homeownership plans before deciding on the most fitting mortgage path. As always, a well-informed decision will stand the test of time, regardless of fluctuations in the financial climate.,This article is an original creation by If you wish to repost or share, please include an attribution to the source and provide a link to the original article.Post Link:

Like (1)
Previous July 10, 2023 8:50 pm
Next July 10, 2023 9:43 pm

Related Posts

  • Empowering Women’s Finances: A Review of Bola Sokunbi’s Book “Clever Girl Finance”

    In recent years, there has been an increased focus on financial literacy and women’s empowerment. Numerous books have been released aiming to help women gain more control over their finances, but none have been as successful as Bola Sokunbi’s book “Clever Girl Finance”(Get book from Amazon). This book is packed with practical and innovative advice for women looking to take control of their financial lives. In this blog post, we will review the contents of the book in detail, covering topics such as budgeting, investing, and debt management. Read on…

    January 27, 2023
  • Navigating Uncertainty: A Guide to Home Insurance Policy Non-Renewal

    In recent times, an increasing number of Americans are facing a harsh reality: their home-insurance provider is not renewing their coverage. Damage from extreme weather events, a surge in lawsuits, and the escalating costs of rebuilding have compelled many leading insurance companies to halt the renewal of existing policies and stop issuing new ones. Homeowners in states like Florida, Louisiana, and California are especially affected, but the problem is rapidly spreading nationwide. The cost of coverage is also skyrocketing as insurance companies grapple with an uptick in claim payouts. As…

    July 1, 2023
  • Accelerating Your Auto Financing Journey: A Comprehensive Review of SuperMoney Auto Loans

    Introduction In today’s fast-paced world, owning a car is more than just a luxury; it’s a necessity. However, finding the right auto loan can be a daunting task. SuperMoney Auto Loans simplifies this process by offering a user-friendly platform to compare and select auto loans from multiple lenders. In this article, we’ll take an in-depth look at SuperMoney Auto Loans, its features, pros, cons, and everything else you need to know before using this service. Overview of SuperMoney Auto Loans SuperMoney Auto Loans is a comprehensive platform designed to help…

    March 21, 2023
  • Debunking the Myth: Why Paying Off Your Mortgage Early Could Be a Financial Misstep

    Introduction: Many homeowners dream of the day when they can make their final mortgage payment and finally own their home outright. While paying off your mortgage early can certainly provide peace of mind and financial freedom, it’s not always the best financial move for everyone. In some cases, it might even be a huge mistake. In this article, we will explore the reasons why paying off your mortgage early might not be the best decision for you. Why Paying Off Your Mortgage Early Might Be a Huge Mistake Opportunity Cost:…

    May 8, 2023
  • Social Security in 2024: A Modest Rise in COLA Amidst Uneven Economic Terrain

    In a financial landscape that is ever-shifting, Social Security recipients are looking at a notably smaller increase in 2024. This change comes on the heels of an unprecedented 8.7% cost-of-living increase in 2023 as inflation soared, and it brings a mix of news—both reassuring and concerning—for retirees and disabled individuals who rely on these benefits. The Smaller Raise: What’s Behind the Numbers Recent trends indicate that inflation is cooling down, and as a result, Social Security checks are expected to rise by about 3% in 2024. This figure, derived from…

    August 11, 2023
  • 7 Popular Strategies for Building Wealth: How Americans Are Achieving Financial Security

    Building wealth is a goal that many Americans strive for, whether it’s to achieve financial stability or secure a comfortable retirement. While there are numerous strategies to build wealth, some methods have proven to be more popular than others. In this article, we’ll explore the 7 most popular ways Americans are trying to build wealth. Investing in Stocks One of the most popular ways Americans try to build wealth is by investing in stocks. Stocks offer the potential for high returns, making them an attractive investment option. However, they can…

    February 17, 2023
  • Credit Repair Cloud: Empowering Credit Repair for Individuals and Businesses – A Comprehensive Review

    Introduction In today’s world, having a good credit score is essential for accessing loans, credit cards, and even rental properties. However, many people struggle with improving their credit scores due to various issues, such as late payments, high credit utilization, or inaccurate information on their credit reports. This is where Credit Repair Cloud comes in. In this blog post, we will introduce and review Credit Repair Cloud, a leading credit repair software that aims to help individuals and businesses repair their credit scores efficiently and effectively. What is Credit Repair…

    April 18, 2023
  • Empowering Small Businesses: Exploring Fundera by NerdWallet and Their Diverse Loan Offerings

    As a small business owner, navigating the world of financing can be daunting. Access to capital is essential for growth, but finding the right loan product that suits your needs can be challenging. Fundera by NerdWallet ( is a platform dedicated to helping small businesses secure the funds they need through a range of loan options, including SBA 7(a) loans, term loans, invoice factoring, and more. In this blog post, we’ll introduce you to Fundera and discuss their services to help you determine if they’re the right fit for your…

    May 2, 2023
  • Retirement Taxes: What to Expect and How to Save Money

    As you approach retirement age, it’s important to start thinking about taxes. Retirement can come with a host of tax implications, and it’s crucial to understand what to expect and how to save money. In this article, we’ll discuss some key things you should know about retirement taxes. First and foremost, it’s important to understand that retirement income is subject to taxation. This includes income from sources like Social Security, pensions, and retirement account withdrawals. Depending on your income level and other factors, you may be required to pay federal…

    February 17, 2023
  • Learn How to Combine Multiple Loans into One Payment for Simplicity and Convenience

    Keeping track of multiple loans can be a difficult task. From keeping up with each loan’s payment schedules to deciphering which one has the best interest rate, managing multiple loans can quickly become overwhelming. Fortunately, it doesn’t have to be that way. By combining your loans into one payment, you can enjoy the convenience and simplicity of only having to make one payment a month instead of several. In this blog post, we’ll discuss exactly what you need to do in order to combine multiple loans into one payment. Read…

    February 19, 2023

Leave a Reply

Your email address will not be published. Required fields are marked *