ARMs Making A Comeback?

Adjustable Rate Mortgages are making a comeback.

“They’re called ARMs for short,” says Danielle Sette, Sales Associate at ERA Justin Realty, “‘ARM’ was a dirty word after the housing bubble burst in 2007, but not anymore.”

Adjustable Rate Mortgages tend to become more popular as fixed rate mortgages rise. “Borrowers are looking for any way they can to save on interest,” says Sette’s partner Jessica Davidson of Team Sette Davidson, “Fewer than 2 percent of all mortgages were adjustable rate when fixed rates were at their all time lows in 2021. Now, we’re seeing clients ask for them again.” 

According to the Mortgage Bankers Association, ARM applications for single family dwellings went up to nearly 13% of nationwide applications as rates went up in 2022.

“They’re making a comeback especially in more expensive metropolitan areas like ours,” says Jennifer Darby Metzger, Broker/Owner of ERA Justin Realty, “But you have to know what you’re signing up for by weighing the pros and cons.”

Adjustable Rate Mortgages come with a lower introductory rate for a set period of time, usually 5 to 7 years. Once that time expires, the rate goes up or down as mortgage rates shift. 

“ARMs are most helpful when you know you won’t be staying in the house for decades,” says Sette, “If it’s a starter home and you know you will need to move in 5 years, it might make sense to get a lower rate ARM.”

“And if you decide you want to stay you might find the rate adjustment is still affordable, even cheaper,” says Davidson, “If not, you can always refinance and get a 15, 20 or 30 long term fixed rate mortgage.”

So why not get one?

The biggest reason is: if you don’t move or refinance when your introductory rate expires, the rate can then adjust to mirror rising interest rate hikes as often as every 6 months, making your monthly payment more variable.

“You have to pay attention to the fine print,” says Metzger. “ARMs can be a useful tool to help you get started on your real estate investment journey. But you have to play the game right.”

Danielle Sette, Jessica Davidson or any of the experienced agents at ERA Justin Realty can help you figure out if an ARM is the best way to get in the game. Give us a call at 201-939-7500.