Are Adjustable Rate Mortgages Making a Comeback?

They are according to an article on CNNMoney.com today. According to the article, adjustable rate mortgages (ARMs) comprised nearly 70 percent of all mortgages during the bubble years. After the housing collapse their market share plummeted, dropping to only 3% of all mortgages in 2009. Now that number appears to be rising, ARMs make up 5% of all loans originated currently, and Freddie Mac predicts that number will rise to 10% by the end of the year. The reason ARMs are making a comeback is simple: mortgage rates are on the rise. Rates on fixed rate loans have increased substantially, rising nearly a point since hitting their all-time low of 4.17 percent in October. As of last week, Freddie Mac showed the average rate on a 30 year fixed mortgage to be 5.05%. Meanwhile rates on 5/1 ARMs are still running under 4%, hitting 3.92% on average last week according to Freddie Mac. A lot of people are wary of ARMs, because they feel that they are a dangerous type of mortgage. In fact, this is sort of reinforced with the subtitle of the CNN article I linked to: “ARMs helped sink the economy – now they’re back”. Personally, I think this is kind of hyperbolic. It is true that ARMs helped to sink the economy – in the same way that cold weather helped to sink the Titanic by freezing the iceberg – they were just one of many causes, and their role in destroying the economy was far, far smaller than the role that deregulation, greed, and excessive risk-taking played. In any case, there are pros and cons to ARMs. For the right kind of buyer (someone who only intends to stay in their house in the short term or someone who intends to quickly pay off their mortgage) ARMs can provide thousands of dollars in savings. It is important to realize that after a fixed period of time, the interest rate on an adjustable rate mortgage changes based upon market conditions. Those who prefer stable payments and cost surety may want to get a fixed rate mortgage. As always, it is important to consult a mortgage professional before making a decision about what mortgage product is the best for you.