Risky adjustable-rate mortgages are making a comeback

Core Insights - Mortgage rates are expected to remain above 6%, leading homebuyers to seek savings through adjustable-rate mortgages (ARMs) [1][4] - The share of ARM applications reached 12.9% of total mortgage applications in September, the highest since 2008 [1] - The average 5/1 ARM rate is currently 6.07%, compared to a 30-year fixed rate of 6.23% [4] ARM Mechanics - ARMs offer a lower fixed interest rate for an initial period, after which the rate becomes variable, potentially increasing monthly payments [3] - Borrowers often refinance or sell before the loan resets, but this strategy may not always be beneficial [6] Risks and Considerations - Borrowers must requalify for a new mortgage if they wish to keep the ARM after the introductory period, which can pose challenges [7][8] - Changes in employment status or personal circumstances can affect the ability to qualify for a new loan [8] Savings Analysis - Monthly savings with ARMs compared to fixed-rate loans at various loan amounts are as follows: - $300,000 loan: Save $31/month ($1,865 over 5 years) [9] - $500,000 loan: Save $52/month ($3,108 over 5 years) [9] - $750,000 loan: Save $78/month ($4,661 over 5 years) [9] - $1 million loan: Save $104/month ($6,215 over 5 years) [9]