Adjustable-Rate Mortgage: Reasons for Their Massive Surge in Popularity

Adjustable-Rate Mortgage: Reasons for Their Massive Surge in Popularity Plymouth Title Guaranty Corporation

Adjustable-rate mortgages (ARMs) are now making up 10% of mortgage, compared to 3% at the beginning of the year. This surge in popularity has many real estate experts and prospective homeowners wondering. What ARMs are, how they work, and what’s making them such a popular choice in 2023.

What is an Adjustable-Rate Mortgage?

An adjustable-rate mortgage (ARM) is a home loan that has an interest rate that can change. Monthly payments on this mortgage fluctuate after establishing the initial rate. An ARM starts with an initial interest rate that lasts for a set period of time.

Adjustable-rate mortgages also typically contain limits that ensure homeowners aren’t hit with unfair hikes in interest rates, such as:

  • Rate hike caps to limit how much a rate can rise in one year
  • Lifetime caps limit how much a rate can increase during the entirety of the loan
  • Payment caps limit the amount that the homeowner’s monthly payment can rise over the lifetime of the loan.

Types of Adjustable-Rate Mortgages

Adjustable-rate mortgages come in many different types that change the initial monthly interest rate and the amount of time between adjustments.

For example, a 5/6 ARM means the initial rate lasts for 5 years. And, it can change every 6 months (hence the 5 and 6). Other examples of this are 3/1, 7/1.

Or 10/1 adjustable-rate mortgages, where the initial cost lasts for the number of months in the first number and will only change every 1 year.

Why ARMs are Becoming More Popular

Adjustable-rate mortgages have become more an attractive option to homebuyers because it is a simple way to decrease their monthly payment. With the market becoming more unsettled, it’s a safer to obtain a smaller payment on the front-end of their mortgage. This is to help protect them against the costs of homebuying. And, if selling their old home, potentially having to pay two mortgages until it’s sold.

The flexibility of adjustable-rate mortgages makes them a popular mortgage option. This is especially true when rates go beyond typical averages and begin to creep into an unaffordable territory. As rates continue to fluctuate, experts predict that the kinds of mortgages will continue to fluctuate as well.

To learn more about adjustable-rate mortgages, contact the title and escrow specialists at Plymouth Title Guaranty Corporation.

Please note: The safety of our staff and clients is our highest priority.  Effective immediately, Plymouth Title Guaranty Corp. will be taking the following precautions to limit the spread of the COVID-19 virus:

All purchase transactions need to take place at a Plymouth Title Guaranty Corp. closing office.

  • If a party to the closing is not feeling well, please contact your closer before the closing so appropriate precautions can be taken.
  • We ask visitors to utilize the restroom in our building upon arrival to thoroughly wash their hands before entering our office.
  • Only individuals required to sign and/or deliver documents at closings will be allowed in our office. Specifically, closings will be limited to borrower(s), seller(s), agents, and lenders.
  • All pens used in the closing will be given to the client after use.
  • All closing rooms will be cleaned and disinfected in-between each closing.
  • Those picking up checks at our office will be instructed to call our main line and request to speak to a staff member who will plan for delivery to the lobby or parking lot of our office.
  • All staff will refrain from shaking hands before or after closings and ask clients to do the same.

Please be advised that our staffing may be impacted during this unprecedented event. While we are committed to continuing to provide outstanding service, we ask for your patience in the face of this pandemic.