WHEN MORTGAGE RATES were at record lows not so long ago, adjustable-rate mortgages (ARMs) were sidelined in favor of the more stable 15- and 30-year fixed-rate mortgage. But as rates rise, ARMs—which typically have lower initial rates than their fixed-rate cousins—have gained popularity.
“The rate on the fixed-rate mortgage has gone up much faster than the rate on the adjustable-rate mortgage,” says Joel Kan, deputy chief economist at the Mortgage Bankers Association. Over the past year through early December, the 30-year fixed-rate loan has more than doubled, from 3.11% to 6.49%, according to Freddie Mac. Meanwhile, the average initial rate of a popular 5/1 ARM was 5.48%.
The share of home buyers applying for an ARM has almost quadrupled since the start of 2022, coming close to 11% of all applications for the week ending November 11, according to the MBA. In October, ARMs accounted for nearly 13% of mortgage applications, the highest share since March 2008.
How ARMs work. As the name implies, most ARMs adjust after the initial lower-rate period ends. Once the adjustment period kicks in, the interest rate changes occur at regular intervals, such as annually or every six months, until the end of the loan term. The new rate is based on a pre-determined index and margin and, depending on market conditions, can make your monthly payment higher or lower than what you paid previously.
This story is from the February 2023 edition of Kiplinger's Personal Finance.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 8,500+ magazines and newspapers.
Already a subscriber ? Sign In
This story is from the February 2023 edition of Kiplinger's Personal Finance.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 8,500+ magazines and newspapers.
Already a subscriber? Sign In
Your Vacation Home Could Provide Tax-free Income
If you plan to rent out your vacation home, it's important to understand how your proceeds will be taxed.
A SOLID YEAR FOR THE KIPLINGER 25
All but one of our favorite actively managed, no-load mutual funds gained ground as markets recovered.
IT'S NOT YOUR IMAGINATION: YOUR CEREAL BOX IS SHRINKING
To avoid raising prices, some manufacturers are reducing the size of common grocery items. Here’s how to fight back.
SHOULD YOU WORRY ABOUT BEING LAID OFF? IT DEPENDS ON YOUR INDUSTRY
Downsizing has hit certain sectors. But cutbacks may be slowing, and some companies are expanding.
How identity thieves are exploiting your trust
Con artists themselves are disguising as well-known brands to steal your money and personal information.
CUT THE COST OF YOUR WIRELESS BILL
AT&T, T-Mobile and Verizon dominate the market, but smaller outfits offer similar network coverage at lower prices.
MAKING HOME ENERGY MORE AFFORDABLE
Households in need can get energy-efficiency upgrades, help with utility bills and more from this nonprofit.
A HEAD START FOR SAVERS
The Saver's Credit is designed to help low- and middleincome taxpayers contribute to a retirement account.
Say I Love You With a Money Date
To nurture a lasting bond with your partner, meet regularly to talk about money.
Plan for Your Own Elder Care
AFTER I wrote a series of columns in 2022 about elder care planning for family members, I received a number of responses like this one: “What about married couples who have no children or whose family members don’t live nearby?” wrote one reader. “Or a single individual with no close relatives? How should these people plan for their own elder care?”
