Why adjustable-rate mortgages are making a comeback

Adjustable Rate Mortgages (ARMs) Overview - Adjustable rate mortgages (ARMs) are regaining popularity after the financial crisis [1] - ARMs offer an initial fixed interest rate period (5, 7, or 10 years) before adjusting to prevailing market rates [2] - Borrowers accept interest rate risk for potentially lower initial rates compared to 30-year fixed mortgages [2] Interest Rate Comparison - Current 30-year fixed mortgage rates are around 63%-64% [3] - Adjustable rate mortgages (ARMs) offer initial rates around 58% for a 7 or 10-year period [3] Market Share and Trends - Adjustable rate mortgages (ARMs) market share reached a post-crisis high of approximately 13% recently [4] - The market share has decreased to around 9% recently [4] - Adjustable rate mortgages (ARMs) usage had previously dropped as low as 1% in some years [4] Changes in ARM Structure - Adjustable rate mortgages (ARMs) adjustments now typically occur every six months or a year [6] - Qualification standards for adjustable rate mortgages (ARMs) are stricter, requiring good credit, down payment, and provable income [6] Link to Federal Funds Rate - Adjustable rate mortgages (ARMs) in the adjustment period are tied to SOFR (Secured Overnight Financing Rate), which is closely linked to the federal funds rate [8] - Potential Federal Reserve rate cuts could lead to lower mortgage rates for adjustable rate mortgages (ARMs) borrowers in the adjustment period [8][9]