Applications for adjustable rate mortgages have climbed to their highest share of total mortgage activity in over a year, as savvy buyers bet that interest rates will continue declining over the medium term. ARMs now account for nearly 14% of all mortgage applications, up from single digits just six months ago.
The most popular products are 5/1 and 7/1 ARMs, which offer initial rates approximately one percentage point below comparable fixed-rate mortgages. Borrowers are calculating that they can refinance into a fixed-rate product once rates decline further, potentially saving tens of thousands of dollars during the initial fixed period.
Mortgage advisors caution that ARMs carry inherent interest rate risk and are best suited for borrowers with strong financial reserves or those who plan to sell or refinance before the adjustable period begins. Buyers should carefully stress-test their budgets against worst-case rate adjustment scenarios.
