All About Adjustable Rate Mortgages

Remember adjustable-rate mortgages (ARMs)? Yeah, those things that were part of the 2008 financial crisis? Well, good news: they’re back!

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For a few years, it’s cheap and life is great, but eventually, the interest rate adjusts (which is a polite way of saying you might suddenly owe WAY more money every month because the economy had a bad day). With regular 30-year mortgage rates staying stubbornly high, homebuyers are now eyeing ARMs again like, “This time it'll probably be just fine.” It can work out well...but there are risks! Is it worth the risk for you? Let's dig in and find out.

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Here are Five Fast Facts on adjustable rate mortgages:

1. 💪 Save Money - ARMs usually start with much lower interest rates than fixed mortgages, which means smaller monthly payments. It’s like signing up for a free trial…except the bill later might punch you in the face.

2. 🫏 Stubbornly High - The average 30-year fixed mortgage rate has been sitting near or above 6% for a couple years, making buyers desperate enough to consider creative (translation: risky) options.

3. 😱 It's Temporary - ARM rate is only locked in for a (short) amount of time, usually 5-10 years. After that, they jump to whatever the market rate is at the time. And your wallet begins screaming at you.

4. 🎲 Bet On The Future - Borrowers who choose ARMs are betting that they can refinance before the rate adjusts upward. It's a “tomorrow” problem, not a “today” problem.

5. 💰 Top Dollar - ARMs are currently used most often for homes over $1 million. Back in 2008, they were used more for subprime borrowers who were already risky. Yeah, that didn't work out well; will this be better? 🤔

🔥Bottom line: Adjustable-rate mortgages are making a comeback because homebuyers are desperate for lower monthly payments in a high-rate world. They can help people afford homes today, but if the market tanks or you don't qualify for a refinance in time (or both), they come with a high-risk “hopefully nothing bad happens later” warning label. It's kinda like eating gas station sushi - everything might be fine...probably. Buyer beware!

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Have you ever used an ARM for your mortgage?

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