ARMs Stage a Comeback

More home buyers are being tempted again by the ultra-low rates of adjustable-rate mortgages, which have fallen to the 3 percent range. ARMs were once blamed as a contributor in sending the housing market from boom to gloom.

In the first quarter of this year, about 12 percent of the $325 billion in new mortgages made were ARMs. In the fourth quarter last year, ARMs made up 9 percent of new mortgages, reports the newsletter Inside Mortgage Finance. During the housing boom, ARMs made up 45 percent of mortgages issued in 2006.

However, near the end of housing’s heyday, many ARMs began to reset to higher rates and borrowers began to default in floods. Experts say that many borrowers who had ARMs did not fully understand the terms of their loan, causing the public to become more skittish of the adjustable-rate mortgages and their use has drop over recent years.

But ARMs are starting to gain more traction again in financing home purchases. Hybrid ARMs are catching on, in which there’s a period of three or five years where the interest rate is fixed before resetting. Experts say those tend to be good choices if you plan to sell your home in that period because you can take advantage of the low interest rates.

“If you know you will sell the home within five years, then it’s a no-brainer,” says Rick Cason, owner of Integrity Mortgage in Orlando, Fla. “But most people are unsure about what the future holds for themselves or the housing market.”

Source: “Borrowers Wade Back into Adjustable-Rate Mortgages,” The New York Times (June 21, 2011)

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